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

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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): a. -.5. b. -1. c. -1.5. d. -2. e. -2.5. 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: a. The demand for lemonade is elastic. b. The demand for lemonade is inelastic. c. The demand for lemonade is unit elastic. d. You should lower prices. e. None of the above. 4. If the price elasticity of demand is -0.5, then a 30% price hike will lead to a a. 5% drop in quantity demanded. b. 15% drop in quantity demanded. c. 20% drop in quantity demanded. d. 40% drop in quantity demanded. e. 50% drop in quantity demanded. 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.
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This note was uploaded on 03/19/2012 for the course ECON 201 taught by Professor Ianirvine during the Fall '10 term at Concordia University Irvine.

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

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