Question

1) The absolute value of price elasticity of demand for a linear demand curve (constant slope) follows the pattern (moving from high prices to low prices along the demand curve)

a. constant.

b. increases.

c. decreases.

d. has no pattern (of changes).

2) Given a demand function P=20–0.2Q. The own-price elasticity at (Q=25, P=15) is

a. -1.

b. -2.

c. -3.

d. -4.

3) A market has only two consumers: A and B. Consumer A has a demand function given by P = 100 – 0.4q and consumer B has a demand function given by P = 80 – 0.5q. At P=90, the market total demand is

a. 5.

b. 15.

c. 25.

d. undetermined.

4) A market has only two consumers: A and B. Consumer A has a demand function given by P = 100 – 0.4q and consumer B has a demand function given by P = 80 – 0.5q. At P=50, the market total demand is

a. 185.

b. 225.

c. 275.

d. 305.

Answer 1

1. c. decreases
(Elasticity decreases.)

2. c. -3
(P = 20–0.2Q.
dP/dQ = -0.2
So, dQ/dP = -1/0.2 = -5
E = (dQ/dP)*(P/Q) = -5*(15/25) = -3)

3. c. 25.
(A: P = 90 = 100 - 0.4q
So, 0.4q = 100 -90 = 10
So, qA = 10/0.4 = 25
B: P = 90 = 80 - 0.5q
S0, 0.5q = 80 - 90
So, qb = 0
So, q = qa + qb = 25 + 0 = 25)

4. a. 185.
(A: P = 50 = 100 - 0.4q
So, 0.4q = 100 -50 = 50
So, qA = 50/0.4 = 125
B: P = 50 = 80 - 0.5q
S0, 0.5q = 80 - 50 = 30
So, q = 30/.5
So, qb = 60
So, q = qa + qb = 125 + 60 = 185)