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BB 107 (Spring) Tutorial 5(s)

The document contains a multiple choice quiz on concepts related to demand and supply, elasticity, and market equilibrium. It also includes short answer questions requiring calculations and analysis of elasticity scenarios. Specifically: 1) The MCQ quiz covers topics like income and price elasticity, determinants of elasticity, supply curve shifts, and characteristics of inelastic vs elastic demand. 2) One short answer question involves calculating the price change needed for a firm to increase sales by 10% given an elasticity of 4. 3) Another asks to judge the elasticity of demand for various products and explain the determinants being considered. 4) A third analyzes a scenario involving a child selling homemade brown

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194 views

BB 107 (Spring) Tutorial 5(s)

The document contains a multiple choice quiz on concepts related to demand and supply, elasticity, and market equilibrium. It also includes short answer questions requiring calculations and analysis of elasticity scenarios. Specifically: 1) The MCQ quiz covers topics like income and price elasticity, determinants of elasticity, supply curve shifts, and characteristics of inelastic vs elastic demand. 2) One short answer question involves calculating the price change needed for a firm to increase sales by 10% given an elasticity of 4. 3) Another asks to judge the elasticity of demand for various products and explain the determinants being considered. 4) A third analyzes a scenario involving a child selling homemade brown

Uploaded by

高雯蕙
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BB 107 Tutorial 5

Part A: MCQ

1. Suppose that a 2% increase in income in the economy decreases the quantity of


gadgets demanded by 1% at every possible price. This implies that:

a. the supply of gadgets is elastic

b. income elasticity is positive and gadgets are a normal good

c. income elasticity is negative and gadgets are a normal good

d. income elasticity is negative and gadgets are an inferior good

2. Which of the following is not characteristic of the demand for a commodity that is
elastic?

A. The relative change in quantity demanded is greater than the relative change in
price.

B. Buyers are relatively sensitive to price changes.

C. Total revenue declines if price is increased.

D. The elasticity coefficient is less than one.

3. If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then:

A. the price elasticity of demand is 0.44.

B. A is a complementary good.

C. the price elasticity of demand is 2.25.

D. A is an inferior good.

4. A perfectly inelastic demand schedule:

A. rises upward and to the right, but has a constant slope.

B. can be represented by a line parallel to the vertical axis.

C. cannot be shown on a two-dimensional graph.

D. can be represented by a line parallel to the horizontal axis.

5. A leftward shift in the supply curve of product X will increase equilibrium price to
a greater extent the:

A. more elastic the supply curve.

B. larger the elasticity of demand coefficient.


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C. more elastic the demand for the product.

D. more inelastic the demand for the product.

6. Suppose the supply of product X is perfectly inelastic. If there is an increase in the


demand for this product, equilibrium price:

A. will decrease but equilibrium quantity will increase.

B. and quantity will both decrease.

C. will increase but equilibrium quantity will decline.

D. will increase but equilibrium quantity will be unchanged.

7. It takes a considerable amount of time to increase the production of pork. This


implies that:

A. a change in the demand for pork will not affect its price in the short run.

B. the short-run supply curve for pork is less elastic than the long-run supply curve for
pork.

C. an increase in the demand for pork will elicit a larger supply response in the short
run than in the long run.

D. the long-run supply curve for pork is less elastic than the short-run supply curve
for pork.

8. Suppose the income elasticity of demand for toys is +2.00. This means that:

A. a 10 percent increase in income will increase the purchase of toys by 20 percent.

B. a 10 percent increase in income will increase the purchase of toys by 2 percent.

C. a 10 percent increase in income will decrease the purchase of toys by 2 percent.

D. toys are an inferior good.

9. If price and total revenue vary in opposite directions, demand is:

A. perfectly inelastic.

B. perfectly elastic.

C. relatively inelastic.

D. relatively elastic.

10. Which of the following generalizations is not correct?


3

A. The larger an item is in one's budget, the greater the price elasticity of demand.

B. The price elasticity of demand is greater for necessities than it is for luxuries.

C. The larger the number of close substitutes available, the greater will be the price
elasticity of demand for a particular product.

D. The price elasticity of demand is greater the longer the time period under
consideration.

11. Marginal utility is the:

A. Sensitivity of consumer purchases of a good to changes in the price of that good.

B. Change in total utility obtained by consuming one more unit of a good.

C. Change in total utility obtained by consuming another unit of a good divided by the
change in the price of that good.

D. Total utility associated with the consumption of a certain number of units of a good
divided by the number of units consumed.

Part B: Short Answer

1. A firm finds that its price elasticity of demand is 4.0. Currently, the firm is
selling 2000 units per month at $5 per unit. If it wishes to increases its
quantity sold by 10%, it must lower its price by:

%∗5
ED (4 )=10
P−5

P=5.125

0.125
∆ P= =2.5 %
5

2. What are the major determinants of price elasticity of demand? Use


those determinants and your own reasoning in judging whether demand for
each of the following products is probably elastic or inelastic: (a) bottled
4

water, (b) toothpaste, (c) Crest toothpaste, (d) tomato sauce, (e) diamond
bracelets, (f) Microsoft’s Windows operating system.

3. Danny “Dimes” Donahue is a neighborhood’s 9-year old entrepreneur.


His most recent venture is selling homemade brownies that he bakes
himself. At a price of $2.00 each, he sells 100. At a price of $1.50 each, he
sells 300. Is demand elastic or inelastic over this price range? If demand had
the same elasticity for a price decline from $1.50 to $1.00 as it does for the
decline from $2.00 to $1.50, would cutting the price from $1.50 to $1.00
increase or decrease Danny’s total revenue?
Is elastic because at a price of $2, Danny just sell 100 and he total revenue is
$200 but if he decrease prices to $1.5, he can sell 300 and total revenue is
$450, his profit increase $250. When lower the prices will increase total
revenue, it is elastic.
When Danny cutting the price to $1.00 in elastic demand, the demand of the
brownies will increase to 500, and his total revenue is $500, increase a profit
of 200.

4. You are choosing between two goods, X and Y, and your marginal utility
from each is as shown in the table below. If your income is $9 and the prices
of X and Y are $2 and $1, respectively, what quantities of each will you
purchase to maximize utility? What total utility will you realize? Assume
that, other things remaining unchanged, the price of X falls to $1. What
quantities of X and Y will you now purchase? Using the two prices and
quantities for X, derive a demand schedule (prices and quantities demanded
table) for X. LO3

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