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Unformatted text preview: Answer Key Testname: CHAPTER2_PRACTICE_PAPER 1) B 2) D 3) D 4) D 5) D 6) A 7) A 8) B 9) B 10) First, solve for Q = 45 - 2(1) + .3(20) + 1(1) = 50. Then price elasticity = -2(1/50) = -0.04. Cross price elasticity = 1(1/50) = 0.02. Income elasticity equals .3(20/50) = .12. 11) See the above ﬁgure. The leftward shift in the supply of tea causes tea prices to increase. Since coffee and tea are substitutes, the demand for coffee increases, resulting in higher coffee prices. 12) 6 12: the supply of parking spots is fixed (at least in the short run). In other words supply is perfectly inelastic at the number of installed spaces. Demand during the day is much higher than demand at night, creating the need to allocate spaces using prices to limit excess demand. Demand is usually well below supply during the night, so there is excess supply even at a price of zero. ...
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