Question

18) Suppose that the percentage change in demand is 20%, the price elasticity of demand is 3, and the price elasticity of supply is 2. What is the percentage change in the equilibrium price? A) 4% B) 5% C) 15% D) 20% 19) Suppose that the percentage change in demand is 20%, the price elasticity of demand is 3, and the percentage change in the equilibrium price is 4 %. What is the price elasticity of supply? A) 0 B) 2 C) 4 D) 5 20) Suppose that the percentage change in demand is 20 %, the price elasticity of supply is 2, and the percentage change in the equilibrium price is 4%. What is the price elasticity of demand? A) 0 B) 1 C) 2 D) 3 21) Suppose that the price elasticity of supply is increases by 5%. Other things being equal, the percentage change in the price should be: A) a 0.5% increase in the price. B) a 5% increase in the price. C) a 0.2% increase in the price. a 2% increase in one and the quantity supplied the price. D)

Answer 1

Question 18

Percentage change in demand = 20% or 0.20

Price elasticity of demand (Ed) = 3

Price elasticity of supply (Es) = 2

Calculate the percentage change in the equilibrium price -

% change in equilibrium price = % change in demand/(Ed+Es)

% change in equilibrium price = 0.20/(3+2) = 0.20/5 = 0.04 or 4%

Thus, the percentage change in the equilibrium price is 4%.

hence, the correct answer is the option (A).

Question 19

Percentage change in demand = 20% or 0.20

Price elasticity of demand (Ed) = 3

Percentage change in the equilibrium price = 4% or 0.04

Calculate the price elasticity of supply (Es) -

% change in equilibrium price = % change in demand/(Ed+Es)

0.04 = 0.20/(3+Es)

0.04(3+Es) = 0.20

0.12 + 0.04Es = 0.20

0.04Es = 0.20 - 0.12

0.04Es = 0.08

Es = 0.08/0.04 = 2

The price elasticity of supply is 2.

Hence, the correct answer is the option (B).

Question 20

Percentage change in demand = 20% or 0.20

Price elasticity of supply (Es) = 2

Percentage change in the equilibrium price = 4% or 0.04

Calculate the price elasticity of supply (Ed) -

% change in equilibrium price = % change in demand/(Ed+Es)

0.04 = 0.20/(Ed+2)

0.04(Ed+2) = 0.20

0.04Ed + 0.08 = 0.20

0.04Ed = 0.20 - 0.08

0.04Ed = 0.12

Ed = 0.12/0.04 = 3

The price elasticity of demand is 3.

Hence, the correct answer is the option (D).

Question 21

When the price elasticity is one then percentage change in quantity equals the percentage change in price.

So,

If the price elasticity of supply is one and the quantity supplied increases by 5% then percentage change in the price should be a 5% increase in the price.

Hence, the correct answer is the option (B).