Frequent Exam Questions with Answers
Elasticity
Chapter 9 ― Question 3
On a linear demand curve, elasticity of demand is unit elastic
- where the demand curve intersects the supply curve
- at its midpoint where the demand curve intersects the x-axis
- where the demand curve intersect the y-axis
*B. Answer A is nonsense. Answers C and D are traps. Supply is elastic if you can extend the supply curve to the y-axis and inelastic if you can extend it to the x-axis.
Chapter 9 ― Question 4
The quantity demanded of laptops has increased by 30 per cent. If the price elasticity for laptops is 3.0, the price for laptops must have fallen by
- 6 percent
- 3 percent
- 30 percent
- 10 percent
*D. 30 percent = 3.0
? percent
Chapter 9 ― Question 6
The price of a commodity falls from $10 to $8. Quantity demanded rises from 100 to 200 units.
What is the price elasticity of demand between the two prices? Use the midpoint formula.
- 5.0
- 3.05
- 2
- 2.5
*B. Change in quantity : Change in price 100 :2 = 3.05 Average quantity Average price 150 9
Chapter 9 ― Question 7
If the cross elasticity for two goods is + 1,5 they are complements. True or false?
* False. The goods are substitutes. For complements, quantity demanded of good A and price of B move in opposite directions. When the price of cars rises, the quantity demanded of petrol falls.
Chapter 9 ― Question 13
Income elasticity for luxuries is
- above zero but below 1
- below zero
- equal to 1
- above 1
*D. Luxuries have by definition a very high degree of income elasticity.
Chapter 9 ― Question 14
Look at the table below.
| Price | Quantity | |
| $40 | 2 | |
| $30 | 4 | |
| $20 | 6 | |
| $10 | 8 |
Demand is most price elastic between
- $30 and $40
- $20 and $30
- $10 and $20
*A. The schedule shows that the demand curve is a linear line. Elasticity rises as price rises along a linear demand curve. So the highest price range is the right answer.
There is, of course, a second possibility of finding the correct answer. You can calculate elasticity with the formula you have learnt: percentage change in quantity/percentage change in price.
For A: 50%/33%. For B: 33%/50%. For C: 25%/100%.
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