1) Please Explain why the answer is B If a good has an elasticity of demand of 2

Question

1) Please Explain why the answer is B

If a good has an elasticity of demand of 21, then we say the good is:

A) highly inelastic.

B) unitary elastic.

C) not elastic.

D) highly elastic.

4) Please explain why the answer is A

If the price of gasoline increases 10% and quantity demanded decreases by 5%, then the demand curve for gasoline is:

A) inelastic.

B) elastic.

C) unitary elastic.

D) a perfect substitutable good.

Given the following production possibilities schedule, what is the opportunity cost of moving from E to F? two bananas for each apple three bananas for each apple one and a half bananas for each apple two and a half bananas for each apple

Explanation / Answer

1)

In this case increase in income is accompanied by same proportionate increase in quantity demanded. Here the value of coefficient Ey is equal to unity (Ey=1). E.g.: 10% increase in quantity demanded due to 10% increase in income.

so (dQ/Q) /(dP/P) = 1

hence it is unitary elastic.

2)

From E to F

Change in bananas = -3

Change in apples = 2

so 3 bananas have replaced 2 apples

hence one and half banana will replace each apple

3)

Price Elasticity of demand is given by

(dQ/Q) /(dP/P) = -5/10 = -1<-0.5 < 0

Hence it is Inelastic

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