DEC5114 Tutorial 05

The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of demand is -2.5, the company must

• increase price by 2.0%.

• decrease price by 2.0%.

• increase price by 0.5%.

• decrease price by 0.5%.

When the price of cheddar cheese increases 15%, quantity demanded decreases 15%. The price elasticity of demand for cheddar cheese is ________ and total revenue from cheddar cheese sales will ________.

• elastic; decrease

• elastic; increase

• inelastic; decrease

• unit elastic; not change

When the price of oysters decreases 25%, quantity demanded is unchanged. The price elasticity of demand for oysters is

• perfectly inelastic.

• elastic.

• inelastic.

• unitary elastic.

Luxury items tend to have ________ demand, and necessities tend to have ________ demand.

• relatively elastic; inelastic

• relatively inelastic; elastic

• perfectly elastic; perfectly inelastic

• unit elastic; perfectly inelastic

If two goods are substitute goods,

• an increase in the price of one will cause a decrease in the demand for the other.

• an increase in the price of one will cause an increase in the demand for the other.

• the price elasticity of demand for both goods will be greater than 1.

• the price elasticity of demand for both goods will be less than 1.

At a price of RM4, quantity supplied is 100, and at a price of RM6, quantity supplied is 120. Using the midpoint formula, the price elasticity of supply is ________ and supply is ________.

• 0.1; inelastic

• 0.45; inelastic

• 2.2; elastic

• 10; elastic

If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then the income elasticity of demand for housing is

• -1.

• -0.7.

• 0.7.

• 1.43.

If the elasticity of labor supply is positive, the labor-supply curve would be

• horizontal.

• vertical.

• downward sloping.

• upward sloping.

If the quantity of tea demanded increases by 2% when the price of coffee increases by 6%, the cross-price elasticity of demand between tea and coffee is

• -3.

• 0.33.

• 3.

• 12.

A mass transit authority charges bus fares of RM1.25 during morning rush hours but only RM1.00 during late morning non-rush hours. Economists explain the fare difference by the fact that the demand for bus rides during the morning rush hours is ________, but during the late morning it is ________.

• more elastic; more inelastic

• perfectly elastic; perfectly inelastic

• more inelastic; more elastic

• unit elastic; relatively inelastic