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201-tutorial-3 - Econ 201 Tutorial#3 Date Week of Oct 4-10...

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Econ 201 Tutorial #3 Date: Week of Oct. 4-10, 2010 Coverage: Chapter 4 Elasticity I. Multiple Choice Questions: 1. The price elasticity of demand of a good is likely to be high (in absolute value) if a. The good has few other substitutes. b. The good is a necessity. c. The expenditure on the good is small compared to the buyer’s income. d. The buyer is addicted to the good. e. None of the above. 2. The demand curve is Qd=12-2P. The supply curve is Qs=P. In equilibrium, price elasticity of demand is (use the point elasticity formula): 3. You own a lemonade stand and have observed that when you raise the price of lemonade from 10 cents to 25 cents, your total revenue doubles. Using this information, you can conclude that: 4. If the price elasticity of demand is -0.5, then a 30% price hike will lead to a 5. Tina and Brian work for the same recording company. Tina claims they would be better off by increasing the price of their CDs while Brian claims they would be better off by decreasing the price. We can conclude that a. Tina thinks the demand for CDs has price elasticity of zero and Brian thinks price elasticity equals 1. b. Tina thinks the demand for CDs has price elasticity equal to 1 and Brian thinks price elasticity equals zero. c. Tina thinks the demand for CDs is price elastic and Brian thinks it is price inelastic. d. Tina thinks the demand for CDs is price inelastic and Brian thinks it is price elastic. e. Tina and Brian should find another job and forget about economics.
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