Question 1 (3 points) The following is the equation that measures the MID-POINT

Question

Question 1 (3 points)

The following is the equation that measures the MID-POINT price elasticity of demand:

Question 1 options:

A. [ (Q1-Qo)/(P1-Po) ]

B. [ (Q1-Qo)/Qo ]/[ (P1-Po)/Po ]

C. [ (Q1-Qo)/(Qo+Q1)/2 ]/[ (P1-Po)/(Po+P1)/2 ]

D. [ (Q1-Qo)/2 ]/[ (P1-Po)/2 ]

Question 2

A product will be considered highly Elastic in demand if it has the following characteristics, EXCEPT:

Question 2 options:

A. If there are many alternatives or substitutes for this product.

B. It is defined within a short term time frame.

C. It has a low adjustment cost in consumption.

D. If the good represent a large proportion of consumer's budget.

Question 3

If the demand for a product is highly Inelastic, that implies the following, EXCEPT:

Question 3 options:

A. The consumer is highly Insensitive to change in prices.

B. That the price elasticity of demand is lower than one in absolute value.

C. That percentage change in quantity is smaller than percentage change in price

D. That an increase in price will decrease total revenue.

Question 4

The following is the absolute value for the Mid-Point price elasticity of demand between two points on certain demand:

Point A : Po = 10 & Qo =10

while

Point B: P1 = 5 & Q1= 20

Question 4 options:

A. l Ep l = 1/3

B. l Ep l = 2/3

C. l Ep l = 3/2

D. l Ep l = 1/4

A. [ (Q1-Qo)/(P1-Po) ]

B. [ (Q1-Qo)/Qo ]/[ (P1-Po)/Po ]

C. [ (Q1-Qo)/(Qo+Q1)/2 ]/[ (P1-Po)/(Po+P1)/2 ]

D. [ (Q1-Qo)/2 ]/[ (P1-Po)/2 ]

Question 2

A product will be considered highly Elastic in demand if it has the following characteristics, EXCEPT:

Question 2 options:

A. If there are many alternatives or substitutes for this product.

B. It is defined within a short term time frame.

C. It has a low adjustment cost in consumption.

D. If the good represent a large proportion of consumer's budget.

Question 3

If the demand for a product is highly Inelastic, that implies the following, EXCEPT:

Question 3 options:

A. The consumer is highly Insensitive to change in prices.

B. That the price elasticity of demand is lower than one in absolute value.

C. That percentage change in quantity is smaller than percentage change in price

D. That an increase in price will decrease total revenue.

Question 4

The following is the absolute value for the Mid-Point price elasticity of demand between two points on certain demand:

Point A : Po = 10 & Qo =10

while

Point B: P1 = 5 & Q1= 20

Question 4 options:

A. l Ep l = 1/3

B. l Ep l = 2/3

C. l Ep l = 3/2

D. l Ep l = 1/4

Explanation / Answer

Q1. Answer is C. (Q1-Q0) / (Q1+Q0)/2   = [(P1-P0)/(P1+P0)/2] Q2. Answer is B. It is defined within short term time frame. Q3. Answer is A. The consumer is highyl insensitive to change in prices Q4. Answer is 1 Explanation: Change in price: 5-10 = -5 Average price: (10+5)/2 = 7.5 % change in price: -5 /7.5 = -66.67% Change in demand: 20-10 =10 Average price: (10+20)/2= 15 % Change in Demand: 10/15 = 66.67% Price elasticity of demand: % change in demand/ % change in pricec 66.67% / -66.67% = -1

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