Question

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6. Quantity supplied c Supply 2. A good will have more inelastic demand, the treater the availability of close substitutes b. longer the period of time. C broader the definition of the market d more it is regarded as a luxury 3. If the price elasticity of demand for a good is 2, then a percent increase in price results in a a 2 percent decrease in the quantity demanded. b. 1 percent decrease in the quantity demanded. C. 4 percent decrease in the quantity demanded d. 0.2 percent decrease in the quantity demanded. 4. In which of the following situations will total revenue increase? a. Price elasticity of demand is 3.0, and the price of the good decreases b. Price elasticity of demand is 0.5, and the price of the good increases C. All of these are correct. d. Price elasticity of demand is 1.2, and the price of the good decreases 5. If the income elasticity of demand is negative, then the good is an a normal good. b. substitute C complement d. inferior good 6. Price controls are usually enacted a as a means of raising revenue for public purposes. b. when policymakers believe that the market price of a good or service is unfair to buyers or sellers. C. when policymakers tax a good. d. All of the above are correct. 7. To say that a price ceiling is binding is to say that the price ceiling a results in a shortage. b. is set below the equilibrium price. c causes quantity demanded to exceed quantity supplied. d. All of the above are correct.

Answer 1

Ques1: The correct option is D. The price elasticity of demand measures the responsiveness of quantity demanded to price.

Ques2: The correct option is C because it is not easier to find substitute for that good. Hence inelastic demand.

Option A is wrong as more substitutes mean highly elastic demand.

Option B is wrong as in long-run price elasticity will be high

Option D is also incorrect as luxury good has an elastic demand.

Ques3: Option A is correct.

Elasticity of demand = % change in quantity demanded / % change in price

2 = - % change in quantity demanded / 1

-2% = change in quantity demanded

here minus sign reflects decrease in quantity demanded.

Ques4: Option B is correct. As price elasticity is just 0.5 which is highly inelastic. Hence, as price increases, there is no much decrease in quantity demanded because of inelastic demand. Hence total revenue will increase.

Ques5: Option D is correct. As inferior goods show an inverse relationship with income as income increases, demand for inferior goods will decrease.

Ques6: Option B is correct. This is used so that goods remain affordable for buyers and also sellers get a fair price for their output.

Ques7: Option D is correct. As it set below the equilibrium price, demand exceed supply which create shortage in the market