Question

1)Explain what it means when demand is inelastic?

2) If demand is elastic, total revenue will increase when the price decreases? True or False?

3) The price elasticity of supply will be a smaller number when it is relatively easy for sellers to increase their supply. ( True or False)?

4) Demand is more elastic when the absolute value of the price elasticity of demand is larger. ( True or False)?

5) If the quantity demanded of one good increases from 200 to 300 when the price of another good increases from $5 to $7, what is the Cross-Price Elasticity of Demand?

a: -.4

b: 1.21

c: -1.21

D: .33

6) If the quantity demanded decreases from 480 to 460 when the price increases from $2 to $2.10, the price elasticity of demand in absolute value is:

A: .88, B: 4.3 C: 1.14 D: 1.49

Based on your answer above, demand for the good is ( Elastic or inelastic)

Based on your answer above, the slope of the demand curve will be (flat or steep)

Based on your answer above, when the price increases total revenue will (Decrease or increase)

Answer 1

1) When demand is inelastic then percentage change in quantity demanded due to percentage change in price is smaller. That is quantity demanded changes by less proportion than the proportionate change in price. Also, total revenue and price move in the same direction.

2) True
(When demand is elastic, total revenue and price move in the opposite direction.)

3) False
(Elasticity will be a larger number when it is relatively easy for sellers to increase their supply because supply will be price elastic.)

4) True
(When the value of elasticity is large then demand is elastic.)

(Note: Post 4 MCQs at a time.)