Question

1:A brand of dress shoes was put on sale for 20% off. This led to an increase of sale by 15%. The price elasticity of demand for this product is

	a.	relatively elastic
	b.	relatively inelastic
	c.	unitary elastic
	d.	perfectly inelastic

2:

The concept of cross-price elasticity is used to examine the responsiveness of demand

	a.	to changes in income
	b.	for one product to changes in the price of another
	c.	to changes in "own" price
	d.	to changes in income

3:

When the cross-price elasticity EPX = 3

	a.	demand rises by 3% with a 1% increase in the price of X
	b.	the quantity demanded rises by 3% with a 1% increase in the price of X
	c.	the quantity demanded rises by 1% with a 3% increase in the price of X
	d.	demand rises by 1% with a 3% increase in the price of X

4:

With elastic demand, a price increase will

	a.	lower marginal revenue
	b.	lower total revenue
	c.	increase total revenue
	d.	lower marginal and total revenue

5:

A direct relation between the price of one product and the demand for another holds for all

	a.	complements
	b.	substitutes
	c.	normal goods
	d.	inferior goods

6:

According to the law of diminishing marginal utility

	a.	as the consumption of a given product rises, the added benefit eventually diminishes
	b.	as the production cost for a given product rises, the added benefit eventually diminishes
	c.	the demand curve for some products is upward-sloping
	d.	as the price of a given product rises, the added benefit eventually diminishes

Answer 1

1)

20/15=1.3333 So it is relatively elastic because change is more than 1.

If elasticity =1, unitary elastic

Elasticity<1, inelastic

2) answer: b ( for one product to change in price of other)

This is because cross elasticity of demand shows change in price of one good relation to change in price of other good.

3) answer= a (demand rises by 3% and price of good X rises by 1%

This is because as discussed earlier cross elasticity is change in quantity of good with relation to change in price of another good.

Now when price of X rises by 1% quantity demanded rises by 3%

4) answer= d ( lower Total revenue and Marginal Revenue)

This is because when change in quantity demanded is more than 1 to change in price so when price rises quantity demanded falls therefore Total revenue falls. When total revenue falls Marginal revenue also falls.

MR falls because MR is change in TR.

Please ask 4 MCQs at a time for detailed explanation. Thank you