1Which of the following describe a product with an elastic d

1.Which of the following describe a product with an elastic demand?
A computer tablet for surfing the internet
B a pack of cigs to a chain smoker

2. What is the name of the method for calculating elasticity that makes the math easier but is less accurate?
A the midpoint elasticty approach
B the point elasrticity approach

3. Using the midpoint method, the price elasticity of demand is determined to be about 0.85. If there is a 10% decrease in the quantity demanded of the product then what effect would this have on the price of the product?
A an 11.8% increase in the price of the product
B a decrease in the price of the product from 8.5 to 10

4. If the price elasticity of supply was calculated as 0.40 for a product and the price increases by 12%, what would happen to the quantity supplied?
A quantity supped would increase by 8%
B Quantity supplied would increase by 4.8%

5. When a 5% increase in income causes a 3% drop in quantity demanded of a good
A the income elastity is .6 and the good is an inferior good
B the cross-price elasticty is .6 and the good is an inferior good

6. A 10% decrease in the price of potato chips leads to a 30% increase in the quantity of soda demanded. It appears that:
A cross-price elastcity of demand for soda is 3
B price elasticty of demand for potato chips is 3

7. You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand, several years after the price change, will be about ?1.5. Select the statement that best describes the results of raising the fare in the long run.
A total revenue falls, since demand changes and becomes price elastic
B total revenue raises immediately, since demand will remain price inelastic

Solution

1. Option A. As with the reduction in price of tablet people would buy more of tablets and use for surfing internet
2. Option B, As arc elasticity gives over a range of prices
3. Option B,

4. Option B

Price

%change in price

Quantity

%change in Q

%change in Q/%change in P

10

20

11.2

12.00

20.96

4.80

0.4

5. Option A, 3%/5% = 0.6, with the increase in income the demand for good decreases

6. Option = 30%/10% =3, since potato chips and soda are complements

7. Option A. Since the elasticity is -1.5, it reduces revenue with the incresae in fares