Question

1.The price elasticity of demand for a liver transplant is perfectly inelastic. The price elasticity of demand is ___________.

A. zero

B. one

C. infinity

D. undefined

2. The price of car batteries increases by 10 percent and the quantity demanded decreases by 10 percent. What is the price elasticity of car batteries?

A. Elastic, and revenue will decrease

B. Elastic, and revenue will increase

C. Inelastic, and revenue will increase

D. Unit elastic, and revenue will not change

3.Assume that the demand for unskilled workers is inelastic. What will the imposition of an effective minimum wage do?

A. Increase total income of minimum wage earners and, as time passes, increase unemployment

B. Increase total income of minimum wage earners and, as time passes, decrease unemployment

C. Decrease total income of minimum wage earners and, as time passes, increase unemployment

D. Decrease total income of minimum wage earners and, as time passes, decrease unemployment

Answer 1

1.

Answer: option A

It is zero. Since the demand is perfectly inelastic, there would be no change in quantity at the change in price. Therefore, the price elasticity of demand (E) is as below.

E = %changein QD / %changein P

         = 0 / % change in P

         = 0

2.

Answer: option D

It is unit elastic, means, equal to 1 (by ignoring minus sign).   

E = %changein QD / %changein P

         = -10% / 10%

         = - 1

There would be no change in total revenue, since the impact of increasing price has equal effect on decreasing quantity.

3.

Answer: option B

Since demand is inelastic, any change in wage has very little impact on labor demand. Therefore, an effective minimum wage increases income of workers because if also the rate is high they are almost equally demanded; it decreases unemployment too, since workers are interested to work and they are demanded too.