Section : Multiple-Choice Questions (75 points) Each question has only one answe

Question

Section : Multiple-Choice Questions (75 points) Each question has only one answer that is most appropriate. Choose the most appropriate answer and bubble it in in the ZEUS form. Each question carries five (5) points. There is no partial credit to an incorrect answer If a good is a necessity, demand for the good would tend to be a. elastic. b. horizontal. c. unit elastic. d. inelastic. 1. 2. When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. W the price falls to $0.40, the quantity demanded increases to 600. Given this information using the midpoint method, you know that the demand for bubble gum is a. inelastic. b. elastic. c. unit elastic. d. perfectly inelastic. The following two questions are based on the graph below: $s0 - o) 100150200250 300 350400450500 Quantity o 3. According to the graph, when price increases from point $30 to $40 we know that must be a. elastic, and total revenue decreases from $8000 to $9000. b. inelastic, and total revenue increases from $8000 to $9000. c. inelastic, and total revenue decreases from $9000 to $8000. d. unit elastic, and total revenue decreases from $9000 to $8000. According to the graph, raising the price from $20 to $30 would a. raise total revenue since the firm is operating in the low elasticity zone. b. lower total revenue since the firm is operating in the low elasticity zone. c. raise total revenue since the firm is operating in the high elasticity zone. d. lower total revenue since the firm is operating in the high elasticity zone. 4.

Explanation / Answer

1.

D.

2.

B.

Working note:

Elasticity of demand (midpoint formula) = ((600-400)/(600+400)/2)/((.4-.5)/(.4+.5)/2) = -1.8

The demand is elastic in nature as the value of elasticity is greater than 1 (in absolute value).

3.

D

Working note:

Price elasticity = ((200-300)/(300) / ((40-30)/(30) = -1

The demand is unit-elastic and income decreases from $9000 to $8000.

4.

A.

Working note:

At $20 price , revenue = 20*400 = $8000

At $30 price, revenue = 30*300 = $9000

Hence, the revenue increases and it shows the lower elasticity zone.

Price elasticity = ((300-400)/(400) / ((30-20)/(20) = -.5

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