ECONOMICS VII

Demand for toothpick is likely to be the least _______

• elastic

• inelastic

Answer explanation

Toothpicks are least elastic because they cost very little and represent a small percentage of a typical grocery budget and have few substitutes.

If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent increase in the quantity demanded, the price elasticity of demand is _______

• 0.83

• 0.30

• 0.30

• 1.20

Business people often speak about price elasticity without actually using the term. Why this statement describes a good with an elastic demand? “I don’t think a price cut will help my bottom line any. Sure, I’ll sell a bit more, but I’ll more than lose because the price will be lower.” 

Answer explanation

The statement suggests that a price cut will not increase the seller's revenue. This indicates that the demand for the good is likely to be elastic, meaning that a small change in price causes a relatively large change in the quantity demanded. In other words, customers are very sensitive to changes in price and will significantly reduce their purchases of the good if the price increases.

If the seller lowers the price of the good, more customers will purchase it because it has become more affordable. However, since the demand for the good is elastic, the increase in sales will not be enough to offset the loss in revenue due to the lower price. Therefore, the seller concludes that a price cut is not beneficial for their bottom line.

The feedback of the ‘Anti-smoking campaign for the youth’ is very successful under huge promotions in the last six months. The price of cigarettes decreases by 18%, and the quantity sold decreases by 8%. It implies that __

• the supply of cigarettes is inelastic

• the demand of cigarettes is inelastic

• whether the total income of the cigarette producers will increase or not depends on the demand elasticity of cigarettes

• substitutes for cigarettes are limited

 If a 1 percent decrease in the price of a pound of squash results in a larger percentage decrease in the quantity supplied, ___

• demand is inelastic.

• demand is elastic.

• supply is inelastic.

• supply is elastic.

The income elasticity of demand is largest for __

• food

• clothing

•  shelter

• luxuries

The income elasticity of demand for bus travel is estimated to be –1.5. This implies that _

Fred’s income has just risen from $940 per week to $1,060 per week. As a result, he decides to purchase 9 percent more steak per week. The income elasticity of Fred’s demand for steak is ___

• 0.70

• 0.90

• 1.00

• 1.33

Joan’s income has just risen from $940 per week to $1,060 per week. As a result, she decides to purchase 12 percent more lettuce per week. The income elasticity of Joan’s demand for lettuce is __

• 0.75

• 0.60

• 0.94

• 1.35

A 10 percent increase in income causes the quantity of orange juice demanded to increase from 19,200 to 20,800 gallons. The income elasticity of demand for orange juice is __

• 0.5

• 0.8

• 1.2

• 1.0.