Question

The price elasticity of demand for bread
A. is computed as the percentage change in quantity demanded of bread divided by the percentage change in price of bread.
B. will be higher if there is a new product that is a close substitute for bread.
C. will be higher if consumers consider bread to be a necessity.
D. All of the above are correct.
E. A and B, only

Which of the following statements is (are) correct?
(x) The demand for strawberry ice cream is more elastic than the demand for ice cream because there are more substitutes for strawberry ice cream than ice cream.
(y) Insulin for insulin-dependent diabetics tends to have an inelastic demand because there are not many close substitutes for insulin and insulin is considered by some to be a necessity
(z) If a good is a luxury, demand for the good would tend to be elastic and the demand curve for the good would tend to be relatively flat.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

Which of the following statements is (are) correct?
(x) If a good is a necessity, demand for the good would tend to be inelastic and the demand curve for the good would tend to be relatively steep.
(y) Mac says that he would buy one apple pie per week regardless of the price. If this is true then Mac's demand for apple pie is perfectly inelastic and the price elasticity coefficient of demand is equal to zero.
(z) The demand for Papa John’s pizza is not as elastic as the demand for pizza because there are more substitutes for pizza than Papa John’s pizza.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (x) only

Answer 1

1.

E) A and B only.

As the formula to calculate price elasticity is % change in quantity demanded divided by % change in the price of the commodity. And the elasticity of product increases as there are close substitutes available.

2.

D) y and z only.

As insulin is a necessity for a diabetic patient, it's demand will be inelastic. And luxury goods demand is elastic and flatter curve relatively because of a small change in price leads to larger change in demand for the product.

3.

A) x, y and z

If a good is a necessity, demand for the good would tend to be inelastic and the demand curve for the good would tend to be relatively steep as large change in price would not affect demand.

If Mac buys one apple pie every week regardless of price then it's demand is inelastic. i.e. Elasticity of price= 0

Pizza will have elastic demand as there are a lot of close substitutes to pizza but not for Papa John's pizza because his pizza has a unique feature to it's pizza.