e2_mup_1110_f11_key - C:\Users\Wissink\Dropbox\1110 fall...

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C:\Users\Wissink\Dropbox\1110 fall 2011\exams 1110 f2011\e2_mup_1110_f11_endnotes completed.doc 14 ANSWERS TO ALL THE MULTIPLE CHOICE QUESTIONS 1. E. Set demand equal to supply to get that P*=30 and Q*=40 and dQ S /dP=4, just use the formula that elasticity = (dQ S /dP)(P/Q) 2. D. The definition of the price elasticity of supply is the percent change in quantity supplied divided by the percent change in price. A and B are both nonsensical answers. E doesn’t tell us enough information, since we cannot say by what percent price has changed. C is incorrect since an increase in price causes supply to increase, not decrease. D is the correct answer. If the elasticity of supply is 2.0, the percent change in quantity supplied will be twice the percentage change in price, so a 10% increase in price causes a 20% increase in the quantity supplied. 3. B. Even if the price for fresh fish soars, we can only get the amount to the extent the nature allows. The bottled water has the most inelastic market demand, not supply. 4. A. The cross price elasticity of demand is given by (% change in quantity of coffee demanded)/(% change in price of tea). Using the arc formula with the average values as the base, the cross-price elasticity is then (5.5)/(4.5).
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e2_mup_1110_f11_key - C:\Users\Wissink\Dropbox\1110 fall...

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