NAME INSTRUCTIONS Li. Use only pencil on your answer sheet may wr\"e on this. Tu
ID: 1106031 • Letter: N
Question
NAME INSTRUCTIONS Li. Use only pencil on your answer sheet may wr"e on this. Turn in this exam copy with your anower sheet to receive c 1. Elasticity is a measure of A. efficiency B. cost-effectiveness C. sensitivity D. stretch 2. Given the following information, calculate the price elasticity of demand The price of nochos is $10 and OD is 100 units. When the price decreases to 55, you observe QD rise to 150 units A. 2 B. 0.87 C. 0.6 D. 1.67 3. Based on the elasticity value calculated in the previous question, demand for nachos is A. perfectly elastic B. elastic (relatively) C. unit elastic D. inelastic (relatively) E. perfectly inelastic 4. In the market for "White Russian" mixed-drinks, you observe price increase by 10% and quantity demanded decrease by 5%. The elasticity of demand in this case is: A. perfectly elastic B. elastic (relatively) C unit elastic D. inelastic (relatively)Explanation / Answer
1. Option C
Elasticity measures the sensitivity of change in demand due to change in price.
2. PED = (Q2-Q1)/[(Q2+Q1)/2] ÷ (P2-P1)/[(P2+P1)/2].
PED = (150-100)/125 ÷ (5-10)/7.5
PED = 0.4 ÷ -0.67
PED = -0.6
Option C.
3. Option D
This is because the value of elasticity is less than one.
4. Option D.
Price elasticity of demand = % change in quantity demanded/% change in price
PED = 5%/10%
PED = 0.5
The value of elasticity is less than one, implying inelastic demand.
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