Suppose the quantity demanded of good z decreases by

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Unformatted text preview: f good Z decreases by 10 percent. If the price elasticity of demand for good Z is 2, the price for good Z a) b) c) d) e) Must have increased by 10 percent Must have increased by 20 percent Must have decreased by 10 percent Must have increased by 5 percent Must have decreased by 20 percent Solution: d) Must have increased by 5 percent %∆Q 10% εd = = =2 %∆P =5% %∆P %∆P Page 8 of 33 ©Prep101 www.prep101.com/freestuff Q13. A perfectly elastic supply curve is ___ and a perfectly inelastic supply curve is ___. a) b) c) d) e) Horizontal; vertical Vertical; horizontal Downward sloping; upward sloping Upward sloping; downward sloping None of the above Solution: a) Horizontal; vertical When any amount of the good is offered at a given price, the supply curve is horizontal supply is highly responsive and it’s perfectly elastic When supply is fixed, the supply curve is vertical No matter how the price changes, the quantity is not affected The supply curve is not responsive to the changes in the price it’s perfectly inelastic Q14. A local bakery store...
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This note was uploaded on 08/26/2010 for the course ECON 208 taught by Professor Dickenson during the Fall '07 term at McGill.

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