9 Which of the following would result in a lower absolute va

9. Which of the following would result in a lower absolute value of the price elasticity of demand for a product? a. wide variety of substitutes available for the good b. long time period considered c. the expenditure on the good small relative to one\'s budget d. the good is a luxury item 10. Which of the following statements regarding the price elasticity of demand is NOT a. A demand for a good is considered unitary elastic if the price elasticity in absolute value is correct: equal to one. Based on the law of demand the price elasticity of demand can be either positive or negative. It measures the change in quantity demanded when there is a change in the price of the product. If the demand for a good is elastic, increase in the price of the good will lead to a decrease in the total revenue. b. c. d. 11. If the price elasticity of supply for Minute Maid lemonade is 2.0, what will happen to the quantity of Minute Maid lemonade that is supplied if the price increases by 20%? a. The quantity supplied will increase by 40%. b. The quantity supplied will increase by 10%. C. The quantity supplied will increase by 0.1%. d. The quantity supplied will decrease by 10%. 12. In order to prove that video games and a game console are complements in and get a consumption, one should measure the a. price elasticity of demand; number greater than 1 (in absolute value) b. price elasticity of demand; number less than 1 (in absolute value) c. cross-price elasticity; positive number d. cross-price elasticity; negative number

Solution

10. Option B is incorrect, because based on the law of demand the price elasticity of demand is only negative. As the law of demand says that there is a negative relation between price of a good and its quantity demanded so the elasticity which measure the change in quantity demanded due to change in price must be neagtive because of the inverse relationship between price and quantity demanded of a good.

Thats why option B is incorrect,

other options are correct because

option a) is correct because it is true that a demand for a good is considered unitary elastic if he price elasticity in absolute value is equal to 1. In other words when price elasticity of demand is 1 it is called unitary elastic demand means the percentage change in price and quantity demanded is of same ratio.

option c) is correct because it is also that that the price elasticity of demand measure the change in quantity demanded when there is a change in the price of the product.

option d) is also correct that if the demand for a good is elastic, the increase in the price of a good will lead to a decrease in the total revenue because an increase in the price will lead to fall in the quantity demanded and it leads to fall in th total revenue.

for example: Let P = 10 and Q = 20 so Total revenue = 10*20 = $200 and the demand for this product is unitary elastic it means if the price of the product rise by 50% the fall in the quantity is also 50% (due to elasticity = 1) it means now P = 15 and Q = 10 so total revenue is 15*10 = $150, which is less than $200.

so the option d) is correct.

11. If price elasticity of supply is 2 and price of Minute Maid increase by 20%

Then according to formula of elasticity, we can find change in quantity supplied.

e = % change in quantity supplied / % change in price

2 = % change in quantity supplied / 20%

solving this we get,

change in quantity supplied is 40%

So the quantity supplied will increase by 40%.

It is so because according to the law of supply, there is a positive relationship between price and quantity supplied.

so if the price increases the quantity supplied will also increase and according to the elasticity the quantity supplied is increased by 40% if price increases by 20%.

Option a) is correct, the quantity supplied will increase by 40%.

Option b) is incorrect because quantity supplied will not increase by 10% but by 40%

Option c) is incorrect because quantity supplied will not increase by 0.1% but by 40%

Option d) is also incorrect because quantity supplied will not decrease by 10% but increase by 40%

12. In order to prove that video game and a game console are complements in consumption, one should measure the cross price elasticity and get a negative number.

so option d) is correct, it is so because in the case of complimentary goods, as the price of one good increases the quantity demanded of other good (complimentary good) decreases. So the cross price elasticity is negative in case of complimentary goods.

option a) is incorrect because for complimentary goods we will measure the cross price elasticity not price elasticity.

option b) is incorrect also because for complimentary goods we will measure the cross price elasticity not price elasticity.

option c) is incorrect because there is negative relation between price of one good and quantity demanded of other good in case of complimentary goods so cross price elasticity will be negative.