Question 7 A computer company wants to elasticity of demand

Question 7: A computer company wants to elasticity of demand for computers is -2.5, the company mustpr rice the quantity of computers it sells by 5%. If the p price by increase; 2.0% 2.0% C. Increase; 0.5% D. Decrease; 0.5% Question 8: A negative income elasticity of demand for a commodity indicates that as income falls, th of the commodity purchased: Falls C. Remains unchanged D. Any of the above Question 9: The quantity demanded ofGood K decreases by 25% when the price of Good J increases by 10%. The cross-price elasticity of Good J and Good K is: B. 0.4 -2.5 D. 2.5 2 Question 10: Mariam knows that demand for her cupcakes is elastic. If she raises her prices, then the revenue from selling cupcakes will A. increase B. decrease C. remain constant D. none of the above p1 TR

Solution

Ans7) b is the correct option. Decrease 2.0%

elasticity of demand = percentage change in quantity / percentage change in price

-2.5 = 5/ percentage change in price

Percentage change in price = -2

If the price elasticity of demand for computers is -2.5. The company must decrease price by 2

Ans8) A is the correct option. Rises. Negative income elasticity means when the income rises, the demand for a particular quantity decreases vice versa. This happens in case of inferior goods.

Ans9) c is the correct option. -2.5

cross price elasticity = percentage change in quantity of good K/ percentage change in price of good J

= -25/10= -2.5

Ans10) b is the correct option. Decrease. When the demand is elastic a smaller change in price will lead to larger change in price so if price increases the quantity decreases by large amount which implies total revenue falls