CHAPTER 4 : PRICE ELASTICITY of DEMAND & SUPPLY

The price elasticity of demand for the vertical demand curve is

• unitary elastic

• perfectly elastic

• inelastic

• perfectly inelastic

Price elasticity of supply for goods is the ratio between

• change in percentage of supply quantity with changes in the percentage of goods price

• change in price and changes in percentage in supply quantity

• change in price and changes in supply quantity

• change in quantity supply and changes in price

Based on a survey, the income elasticity of demand for the iPad Mini is 1.4. This shows that the iPad Mini

• is a normal goods

• is a luxury goods

• is a substitutes goods

• is a necessity goods

A mother who buys her son two sets of school uniforms every year regardless of changes in their prices has a perfectly inelastic demand for school uniforms

• TRUE

• FALSE

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that:

• Cheerios are a luxury

• there are more substitutes for Cheerios than for cereals as a whole

• cereals are a necessity

• consumption of cereals as a whole is greater than consumption of Cheerios

If a 3 percent decrease in the price of BMW cars results in a 5 percent increase in the number of BMW cars sold, the demand for BMW cars is unit elastic

• TRUE

• FALSE

The price elasticity of demand for a textbook is estimated to be 1 no matter what the price or quantity demanded. In this case,

• a 10 percent increase in price will result in a 10 percent increase in the quantity demanded

• an increase in price will decrease the total revenue of sellers

• a decrease in price will increase the total revenue of sellers

• a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded

If the price elasticity of demand for a good is zero, this means that the goods

• will still be in demand when there is an increase in price

• will be purchased in the same quantity at any price level

• will not be in demand when there is an increase in price

• will be purchased in smaller quantities when there is an increase in price

A mother who buys her son two sets of school uniforms every year regardless of changes in their prices has a perfectly inelastic demand for school uniforms

• TRUE

• FALSE

The price of goods A increases from RM200 to RM300, the quantity supplied increases from 100 units to 180 units. Compute the price elasticity of supply for goods A

• 1.6

• 0.42

• 0.89

• 1.2