Elasticities

Which PED values indicate a good has demand that is elastic?

• PED > 0

• 0 > PED > 1

• PED > 1

When PED = 1, this is referred to as _____

• Unitary (unit) elastic

• Relatively inelastic

• Relatively elastic

• Perfectly inelastic

A company sells a good that has been measured to be price inelastic. They are looking to increase their revenue. Should they increase or decrease their price? (answer only one word; increase or decrease)

A good has an income elasticity of demand (YED) of -1.3. What can you say about the quality of the good? Its a(n) _______

• Normal good

• Inferior good

• Luxury good

• Necessary good

The quantity demanded of a good triples when income doubles. What is the YED of this good? (enter just the number, eg. 4 or 3.6)

In the market for luxury watches, a producer is making $500 000 per week in revenue selling them for $2 000 each. The producer increases his price to $3 000 and revenue increases to $600 000. What is the price elasticity of demand in the market?

• 20

• 2.5

• 0.4

• 0.05

Which of the following are determinants of PED? Check all that apply.

• Number and closeness of substitutes

• Time period considered (time to respond)

• Unused capacity

• Proportion of income

Calculate total revenue (TR) after the price increases from $2 to $2.10.

• $180

• $400

• $378

• $360

After an increase of 10% in the price of a good, the quantity supplied increases by 25%. What is the PES of this good?

• 0.4

• 1

• 2

• 2.5

Two companies produce the same good. Company A has spare capacity, while Company B is working at full capacity. How do you expect PES to compare across the two? (ceteris paribus)

• Company A will have a more price-elastic supply than that of B.

• Company B will have a more price-elastic supply than that of A.

• We cannot say.

• They will be the same since they are producing the same good.