17 May Elasticity of demand and supply

Elasticity of demand and supply

Revision

• Elastic demand: %△P < %△Q

• Inelastic demand: %△P > %△Q

P & TR

• Elastic demand: P↑ TR?

• Inelastic demand: P↑ TR?

Multiple Choice

What is the price elasticity of demand for a product for which a 10% price rise reduces sales volume by 5%?

• - 0.5

• -2.0

• -0.2

• -5.0

What is the price elasticity of demand for a product for which a 10% price rise reduces sales volume by 5%?

• Ed = %△Q / %△P

• Ed = -5% / 10%

• Ed = -0.5

Multiple Choice

Demand for a product is likely to be price inelastic the...

• fewer substitutes it has

• fewer complements it has

• higher its market price

• greater the proportion of income spent on it

• fewer substitutes → inelastic demand

Multiple Choice

A product has perfectly inelastic price elasticity of demand. What will happen to total revenue if the price of the product rises by 10%?

• it will fall by 10%

• it will fall to zero

• it will remain unchanged

• it will rise by 10%

A product has perfectly inelastic price elasticity of demand. What will happen to total revenue if the price of the product rises by 10%?

• Ed = 0

• %△Q = 0

• TR = P x Q

• Q↑10%, P unchanged → TR↑10%

Multiple Choice

A football club raises all stadium seat prices by 5%. The stadium is divided into four zones. The quantity sold of seats falls by 1% in zone W, by 3% in zone X, by 5% in zone Y and by 6% in zone Z.

In which zone is the responsiveness of demand for seats to the price change elastic?

• W

• X

• Y

• Z

A football club raises all stadium seat prices by 5%. The stadium is divided into four zones. The quantity sold of seats falls by 1% in zone W, by 3% in zone X, by 5% in zone Y and by 6% in zone Z.

In which zone is the responsiveness of demand for seats to the price change elastic?

• Ed > 1

• %△P < %△Q

Multiple Choice

A hawker finds that when he increases his price for fish balls, his revenue decreases. The demand for his fish balls is therefore

• perfectly inelastic.

• inelastic.

• unitarily elastic.

• elastic.

A hawker finds that when he increases his price for fish balls, his revenue decreases. The demand for his fish balls is therefore

• P↑

• %↑P < %↓Q → elastic demand

• Loss > Gain

• TR↓

Multiple Choice

At a price of $100 per unit, the quantity demanded of Good X is 50 units per month. When the price is lowered to $50 per unit, knowing that the price elasticity of demand within this price range is greater than 1, the quantity demanded will:

• drop by more than 25 units per month.

• drop by less than 25 units per month.

• rise by more than 25 units per month.

• rise by less than 25 units per month.

At a price of $100 per unit, the quantity demanded of Good X is 50 units per month. When the price is lowered to $50 per unit, knowing that the price elasticity of demand within this price range is greater than 1, the quantity demanded will:

• P↓ Qd↑ ∴rise

• %△P = 50%

• Ed > 1: elastic demand

• %△P < %△Q

• %△Q > 50%

• ∴ rise by more than 25 units

Multiple Choice

John consumes 5 units of bottled water per week. When the unit price of bottled water increases from $100 to $200, the quantity demanded remains at 5 units per week. John’s price elasticity of demand for bottled water is

• equal to 0.

• between 0 and 1.

• equal to 1.

• larger than 1.

John consumes 5 units of bottled water per week. When the unit price of bottled water increases from $100 to $200, the quantity demanded remains at 5 units per week. John’s price elasticity of demand for bottled water is

• Q remains unchanged: %△Q=0

• %△Q/%△P = 0

Multiple Choice

Yuna said, ‘I go ice skating five times a week. If the ticket price doubles, I will go only four times a week.’

Yuna’s demand for ice skating is

• perfectly inelastic.

• inelastic.

• unitarily elastic.

• elastic.

Yuna said, ‘I go ice skating five times a week. If the ticket price doubles, I will go only four times a week.’

Yuna’s demand for ice skating is

• %△P = +100%

• %△Q = (4-5)/5 x 100% = -20%

• %△P > %△Q: inelastic demand

Multiple Choice

Which of the following about the elasticity of demand is correct?

• It measures the responsiveness of the demand for a good to a change in its price.

• When the percentage change in price is greater than the percentage change in quantity demanded, the elasticity of demand is greater than one.

• When a change in price is not accompanied by a change in quantity demanded, the demand is perfectly elastic.

• None of the above

• It measures the responsiveness of the demand (Qd) for a good to a change in its price.

• When the percentage change in price is greater than the percentage change in quantity demanded, the elasticity of demand is greater (less) than one.

• When a change in price is not accompanied by a change in quantity demanded, the demand is perfectly elastic (inelastic).

Multiple Choice

When the price elasticity of demand of a good is equal to one, this means that

• a change in its price will not affect its quantity demanded.

• a change in its price will not affect the total revenue.

• a change in the price of its substitute will not affect the demand for the good.

• a change in the income of consumers does not affect their total expenditure.

When the price elasticity of demand of a good is equal to one, this means that

• %△Q = %△P

• Unitarily elastic demand

• TR remains unchanged

Multiple Choice

Suppose the government relaxes the entry barriers for firms wanting to enter the market for Good X. With more firms engaging in the production of Good X, the price and quantity transacted of Good X change by 4% and 10%, respectively. One possible reason for the above phenomenon is that

• it has become easier for firms to enter the market for Good X.

• it takes time for firms to adjust their production plans.

• there are many close substitutes for Good X.

• Good X is a habit-forming good.

Suppose the government relaxes the entry barriers for firms wanting to enter the market for Good X. With more firms engaging in the production of Good X, the price and quantity transacted of Good X change by 4% and 10%, respectively. One possible reason for the above phenomenon is that

• S↑ P↓ Q↑, %↑Q > %↓P → Elastic demand

• it has become easier for firms to enter the market for Good X. Elastic supply

• it takes time for firms to adjust their production plans. Inelastic supply

• there are many close substitutes for Good X. Elastic demand

• Good X is a habit-forming good. Inelastic demand

Multiple Choice

With advances in production technologies in recent years, the production costs of tablet computers (平板電腦) has been substantially reduced. Other things being equal, the price of tablet computers has dropped by 30% and the quantity sold has changed by 50%.

This would suggest that within the above price range, there was an _______ tablet computers.

• elastic demand for

• inelastic demand for

• elastic supply of

• inelastic supply of

With advances in production technologies in recent years, the production costs of tablet computers (平板電腦) has been substantially reduced. Other things being equal, the price of tablet computers has dropped by 30% and the quantity sold has changed by 50%.

• production costs ↓

• S↑ P↓ Q↑

• %↓P > %↑Q

• Elastic demand