Question

1) Suppose the price of a good increases 5%, and the quantity demanded falls 8%. The ----- of this good is -----.

1. supply, unit elastic
2. demand, perfectly elastic
3. demand, inelastic
4. demand, elasti

2) Suppose that when the price of a good increases from $120 to $132 per unit, the quantity demanded falls from 33 to 30 units. Using the midpoint method calculate price elasticity demand.

1. -1
2. -1.25
3. 3.0
4. -0.1

3) Along a straight-line demand curve, demand at higher prices is ----- than demand at lower prices.

1. more elastic
2. more inelastic
3. less elastic
4. none of the above

4) Elasticity and the slope of the demand curve are usually the same.

1. True B)False

Answer 1

1. Suppose the price of good increases by 5%, and the quantity demanded falls by 8%. The demand of this good is Elastic

Ed = % change in Qty demanded/% change in Price

=-8/5 = -1.6

2. When the price of a good increases from $120 to $132 per unit, the quantity demanded falls from 33 to 30 units.

P	Q	Change in P	Change in Q	Average P	Average Q	Mid Point Ed
120	33
132	30	12	-3	126	31.5	-1.00

Mid Point Ed = (Change in Q/Change in P)*(Average P/Average Q). The demand is Unitary Elastic

3. Along a straight-line demand curve, demand at higher prices is more elastic than demand at lower prices. The elasticity of demand will decrease as the price falls and quantity increases.

4. Elasticity is not at all the same as the slope of the demand curve. The slope of the demand curve is the first order derivative of the demand function whereas the elasticity measures responsiveness of demand due to change in price of a commodity. The statement is FALSE.