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# Econ 190 elasticity Answers.doc

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School
Thompson Rivers University
Department
Economics
Course
ECON 1900
Professor
Nancy Carson
Semester
Winter

Description
Answers to Practice Questions: Elasticity 1. In Diagram 1, the absolute value of the price elasticity of demand over the price range \$14-\$16 is: a) one Answer: c) all of section a on Diagram 1 is relatively elastic. b) less than one c) greater than one d) 0.5 2. The absolute value of price elasticity of demand is continuously decreasing as price falls in diagram(s): a) 1, 2, and 3. b) 2 Answer: d) c) 4 d) 1 3. As price decreases, total revenue increases, reaches a maximum and then decreases for the demand curve in diagram: a) 1. Answer: a) For the elastic portion, %)P > %) Q So a decrease in price b) 2. c) 3. causes TR to increase. At the midpoint, %) P = %) Q. Therefore TR has d) 4. reached its max. The bottom half is inelastic iso TR falls as price fall since %) P < %) Q 4. The good which has the fewest substitutes is shown in diagram: a) 1. b)2 c)3 d)4 Answer: b) 5. Demand is inelastic in: a) the entire demand curve in diagram 1. b) the entire demand curve in diagram 3. c) section (a) of the demand curve in diagram 1. Answer: d) d) section (b) of the demand curve in diagram 1. 6. Demand is inelastic in: a) the entire demand curve in diagram 1. b) the entire demand curve in diagram 2. c) the entire demand curve in diagram 3. Answer: b) d) the entire demand curve in diagram 4. 7. In diagram 3: (not in midterm) a) the absolute value of the price elasticity of demand is greater than one. b) the absolute value of the price elasticity of demand is equal to one. Answer: b) c) total revenue is decreasing and quantity increases. d) the absolute value of the price elasticity of demand is decreasing as quantity increases. 8. Hamburger University is losing \$4 million dollars per year. The trustees of the university want to increase fees to cover the deficit. The president of the student body wants to decrease fees to cover the deficit. On the basis of this information, which of the following is true? a) The trustees think demand is elastic, and the president of the student body thinks it’s inelastic. b) The trustees think demand is inelastic, and the student body president thinks it is elastic. c) Both think the elasticity of demand is one. d) None of the above. Answer: b) 9. If good x is a gross substitute for good y then the cross price elasticity of demand for x with respect to the price of y is (X) a) Negative. b) Positive. c) Zero. d) Undefined. Answer: b) 10. A negative cross elasticity between two goods means they are: (X) a) Substitutes. b)luxury goods. c) complements. d) inferior.
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