Topic 2 - Part 1 - 2129

If the price elasticity of demand for a good is greater than one in absolute value, economists characterize that demand as

• elastic

• inelastic

• perfect

• vertical

If demand is inelastic

• then a 1% increase in price leads to a fall in quantity of greater than 1%.

• then a 1% increase in price leads to a fall in quantity of less than 1%.

• then a 1% increase in price leads to a fall in quantity of 1%

• then a 1% increase in price leads to a rise in quantity of less than 1%

The cross price elasticity of demand between two goods will be negative if

• the two goods are complements

• the two goods are substitutes

• the two gods are luxuries

• One of the good is luxury and the other is a necessity

If the demand curve for slides of pizza is given as Q=300-16p, then the point elasticity of demand when price is $1.5 is:

The consumer is in equilibrium when

• MRT=MRS

• The budget line is tangent to the indifference curve at the bundle chosen.

• All of the answers are correct.

Suppose a consumer with an income of $100 is faced with P_x = $1 and P_y = $0.50. What is the market rate of substitution between good X (horizontal axis) and good Y (vertical axis)?