A price elasticity of demand equal to ? 0.4 indicates that a A) 4 percent increa

Question

A price elasticity of demand equal to ? 0.4 indicates that a

A) 4 percent increase in price leads to a 10 percent decrease in quantity demanded.
B) 1 percent increase in price leads to a 4 percent decrease in quantity demanded.
C) 0.4 percent decrease in price leads to a 1 percent increase in quantity demanded.
D) 10 percent decrease in price leads to a 4 percent increase in quantity demanded.

7.

When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the price elasticity of demand for soft drinks was approximately equal to

A) ? 0.15.
B) ? 0.60.
C) ? 0.8.
D) ? 1.67.

8.

When the consumer spends a small portion of his income on a good, ceteris paribus, demand will be relatively

A) elastic.
B) unit-elastic.
C) inelastic.
D) elastic, unit-elastic or inelastic depending upon supply.

9.

In the above table, the cross price elasticity of demand for good X with good Y when PY falls from $20 to $18 is

A) ? 2
B) 0
C) + 1
D) ? 1
E) + 2

10.

Use the data from February and March. In the above table, the cross price elasticity of demand for good Z with good Y when PY falls from $18 to $15 is

A) ? 1.33
B) +1.33
C) + 0.5
D) ? 0.5

A price elasticity of demand equal to ?½ 0.4 indicates that a A) 4 percent increase in price leads to a 10 percent decrease in quantity demanded. B) 1 percent increase in price leads to a 4 percent decrease in quantity demanded. C) 0.4 percent decrease in price leads to a 1 percent increase in quantity demanded. D) 10 percent decrease in price leads to a 4 percent increase in quantity demanded. 7. When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the price elasticity of demand for soft drinks was approximately equal to A) ?½ 0.15. B) ?½ 0.60. C) ?½ 0.8. D) ?½ 1.67. 8. When the consumer spends a small portion of his income on a good, ceteris paribus, demand will be relatively A) elastic. B) unit-elastic. C) inelastic. D) elastic, unit-elastic or inelastic depending upon supply. 9. In the above table, the cross price elasticity of demand for good X with good Y when PY falls from $20 to $18 is A) ?½ 2 B) 0 C) + 1 D) ?½ 1 E) + 2 10. Use the data from February and March. In the above table, the cross price elasticity of demand for good Z with good Y when PY falls from $18 to $15 is A) ?½ 1.33 B) +1.33 C) + 0.5 D) ?½ 0.5

Explanation / Answer

(1st question) Option (D)

Elasticity of demand = % Change in quantity demanded / % Change in price

When elasticity = -0.4, it means that as price decreases (increaes) by 1%, quantity demanded increases (decreases) by 0.4%, therefore as price decreases (increaes) by 10%, quantity demanded increases (decreases) by (10 x 0.4%)= 4%.

(7) Option (B)

Using point method, Elasticity = % Change in quantity / % Change in price

= [(85 - 100) / 100] / [$(0.75 - 0.6) / $0.6]

= (- 15 / 100) / ($0.15 / $0.6)

= - 0.6

(8) Option (C)

The smaller (larger) the proportion of income spent on a good, the more inelastic (elastic) its demand is.

(9) Option (C)

Cross-price elasticity = % Change in demand for X / % Change in price of Y

= [(90 - 100) / 100] / [$(18 - 20) / $20]

= (-10 / 100) / (-2 / 20)

= 1

NOTE: As per Chegg Answering Policy, first 4 questions are answered.

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