Question

The consumer's original monthly income is $4,000. Her income increases by 25%, and, a result, her demand for Good X changes from 300 to 350 units per month.

Based on this information,

	a.	Good X is price inelastic, and is a complement in consumption.
	b.	Good X is a normal good
	c.	Good X is price elastic, but income inelastic.
	d.	Good X is an inferior good.

If the value of the own-price elasticity of demand is infinite (in absolute value),

	a.	demand is perfectly inelastic
	b.	demand is unitary elastic.
	c.	demand is more elastic in the short-run, and less elastic in the long-run.
	d.	demand is perfectly elastic.

Which of the following statements best describes the relationship between short-run supply elasticity and long-run supply elasticity?

	a.	For products that can be recycled, long-run supply is likely to be more price elastic than short-run supply.
	b.	For many products, long-run supply is likely to be less price elastic than short-run supply because producers (or suppliers) can adjust supply more efficiently in the short-run.
	c.	For many products, long-run supply is likely to be more price elastic than short-run supply.
	d.	Both the short-run and long-run elasticities of supply represent the responsiveness of prices to changes in quantities supplied ( for profit-maximizing firms).

The own price elasticity of demand for Good Y is -1.75. Management reduces the price of Good Y by 5% to stimulate demand.

As a result of this "pricing strategy,"

	a.	The firm's total revenue will remain unchanged (since demand is unitary elastic).
	b.	The firm's total revenue will decrease (since demand is price inelastic).
	c.	The firm's total revenue will increase (since demand is price elastic).
	d.	there is no relationship between the firm's own price elasticity of demand and its total revenue.

Answer 1

1. Here correct option is; option b- Good X is a normal good

Because, here her consumption increased as a result of an increase in her income. ‘A normal good is a good that experiences an increase in its demand due to a rise in consumers' income’.

2. Here correct option is; option d- demand is perfectly elastic

“If the own price elasticity of demand is infinite (in absolute value), then; demand is perfectly elastic, the demand curve is vertical and consumers do not respond at all to changes in price”

3. Here the statements which describes the relationship between short-run supply elasticity and long-run supply elasticity is; option c- For many products, long-run supply is likely to be more price elastic than short-run supply

“Supply is normally more elastic in the long run than in the short run for produced goods, since it is generally assumed that in the long run all factors of production can be utilised to increase supply, whereas in the short run only labor can be increased”.

Note: in the above question I’m not so sure about the answer as the option d has also a small chance. But from my point of view the correct answer is option c

4. Here the correct option is; option c- The firm's total revenue will increase (since demand is price elastic).

Here it is given that the own price elasticity of demand for Good Y is -1.75, which means the demand is price elastic (demand greater than 1 is price elastic).