WorksheetsElasticity, Consumer and Household Behaviour
Total questions: 10
Worksheet time: 3hrs 30mins
A product is likely to have a price elasticity of demand that exceeds 1 when:
Its price falls
It is a necessity
It has close substitutes
Consumers are not very responsive to changes in price
Scenario 4.1:
Daniel derives utility from only two goods, cake (Qc) and donuts (Qd). The marginal utility that Daniel receives from cake (MUc) and donuts (MUd) are given as follows:
MUc = Qd MUd = Qc
Daniel has an income of $240 and the price of cake (Pc) and donuts (Pd) are both $3.
See Scenario 4.1. What is Daniel's budget constraint?
240 = 3Pc + 3Pd
240 = 3Qc + 3Qd
240 = (Pc)(Qc)
240 = (Qc)(Qd)
What is the price elasticity of demand?
Measures how a change in the price of some product affects demand for that same product.
Measures how a change in the price of some product affects supply for that same product.
Measures how a change in wealth affects consumption.
Measures how a change in the price of one product affects demand for a different product.
according to the law of diminishing marginal utility, satisfaction derived from consumption of each additional unit:
increases
decreases
remains same
either increases or decreases
Starting at point A, which of the following represents the substitution effect of an increase in the price of food?
The move from A to B
The move from A to C
The move from A to B, and then to C
The move from A to C, and then to B
If P = $10 for Tiny Tee-shirts, Q = 20, but if P = $5, Q = 25. The price elasticity of demand for Tiny Tee-shirts is:
3.0.
1/3
1/2
21
If the price of Kellogg's Corn Flakes goes up from $1.89 to $2.05 and quantity demanded changes from 250 to 210, then the price elasticity of demand would be:
0.47
0.02
250
2.14
