Name: WID: 2) Suppose that the demand curve in both markets shifts out by the sa

Question

Name: WID: 2) Suppose that the demand curve in both markets shifts out by the same distance. The change in price will be larger in A) market A; market A B) market A; market B C) market B; market A D) market B; market B , and the change in quantity will be larger in 3) Refer to the diagram on the right. Which of the following statements is TRUE? Price S12 11 I. The price elasticity of demand is less than 1 in absolute value at prices less than $5 II. The price elasticity of demand is elastic at prices above $5. III. The price elasticity of demand is negative infinity at a price of SO. IV. At S5, the price elasticity of demand is perfectly inelastic. A) III only B) II and IV C) I, II, III, and IV D) I and II 10 0 1 2 34567 89 1o Quantity 4) Refer to the following diagram. What is the price elasticity of demand at point A? A)-2.6 B)-1.54 C)-0.7 D)-3.2 Price $12 10 4 Slope3 I 2 3 4 5 6 7 8 9 10 Quantity 5) If the inverse demand curve for a good is given by P - 100-40, the price elasticity of demand is elastic at a price of and inelastic at a price of A) $40; $60 B) $60; $50 C) $55; $35 D) $35; $30

Explanation / Answer

2. Insufficient information to answer. One must know the elasticity of demand in both the markets in order to see the effects on prices and quantities. The change in price is larger in the market having comparatively higher elasticity.

3. The price elasticity of demand at a point is equal to the ratio of the length of lower segment and length of the upper segment from that point. the length of both lower segment and the upper segment is approx 6.4 units. the elasticity at $5 would be 6.4/6.4 which is 1. At prices lower than $5, the corresponding point on the demand curve would decrease the length of the lower segment as compared to upper one. so the elasticity of demand at prices less than $5 would be less than one or inelastic; the numerator is less than the denominator. whereas for the same reasons, the elasticity of demand at prices higher than $5 would be greater than one or elastic. so the correct option is D.

4. Price elasticity of demand= Slope of the demand curve* (p/q)

so, here, the elasticity at price $6 corresponding to 3 units would be (-1.3)*(6/3)= -2.6. so the correct option is option A.

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