Economics Test 2

Study the following table and calculate the elasticity of demand (using the Arc method) if price decreases from R15 to R10.

• 0.76;

• 1;

• 1.32;

• 0.13.

Assume that the price of a pair of jeans is R250 per unit, while a pair of shoes is

R100 per pair. The maximum combination of shoes and jeans that a consumer can

purchase with R1000, assuming all the income is spent, is:

• 0 jeans and 10 pairs of shoes or 0 shoes and 4 pairs of jeans;

• 0 jeans and 4 pairs of shoes or 0 shoes and 10 jeans;

• 10 pairs of shoes and 4 pairs of jeans;

• Only 10 pairs of jeans.

If the income elasticity of demand for brown bread is +0.5, this implies that brown bread is:

• An inferior good;

• A luxury good;

• A durable good;

• A necessity.

Which one of the following statements is correct?

• The price elasticity of the demand for salt is very low. The suppliers of salt, therefore, have an incentive to reduce the price of salt.

• The demand for leisure air travel is price elastic. The suppliers of air travel, therefore, have an incentive to raise the price of air travel.

• A horizontal demand curve is perfectly price elastic.

• The price elasticity of a vertical demand curve lies somewhere between 0.1 and 1.

When the price of commodity C rises by 10%, the quantity demanded falls by 18%.

This is an example of:

• Perfectly elastic demand.

• Elastic demand.

• Unitary elasticity of demand.

• Inelastic demand.

A cut in train fares leaves the total revenue from train fares the same as before.

This is an example of:

• Perfectly elastic demand.

• Elastic demand.

• Unitary elasticity of demand.

• Perfectly inelastic demand.

The threshold value for the cross elasticity of demand that determines whether a product is a substitute or a complement is:

• 1;

• 0;

• ‐1;

• Infinity.

The demand for cooldrink is price elastic if:

• An increase in price results in an increase in total revenue.

• A decrease in price results in an increase in total revenue.

• The good is a necessity.

• A decrease in price results in a decrease in total revenue.

The slope of an indifference curve:

• Represents the maximum amount of one commodity the consumer is willing to give up in exchange for one more unit of another commodity and remain at the same level of satisfaction.

• Is the amount of one commodity the market requires an individual to give up to obtain one additional unit of another commodity without any change in the amount of money spent.

• Shows that, all the time, more is preferred to less – the axiom of

  monotonicity.

• States that a lower price generally increases the amount of a commodity that people in a market are willing to buy.

Utility from consuming a good is understood by economists to mean:

• How often we consume the good.

• How much satisfaction or benefit we get from consuming the good.

• How much it costs to buy the good.

• How we best use the good.