I. If price elasticity of demand for a good is-5, then a 10% increase in price w

Question

I. If price elasticity of demand for a good is-5, then a 10% increase in price would be expected to result in a: a. 5% decrease in quantity demanded. b. 5% increase in quantity demanded. C. 10% decrease in quantity demanded. d. 50% decrease in quantity demanded. e· 10% increase in quantity demanded. 2. If demand is Qo 50 P, supply is Qs equilibrium, total surplus is: a. 40 b. 100 c. 200 d. 400 e. None of the above P 10, and the market is in 3. As long as the demand for good X is not perfectly inelastic, a tax on good X enacted in order to raise revenue for meals for homeless children would cause total surplus in the market for good X to: a. increase b. decrease c. increase if the elasticity of supply is greater than the elasticity of demand d. increase if the elasticity of demand is greater than the elasticity of supply e. decrease if the elasticity of demand is greater than the elasticity of supply 4. Assume demand is linear in a competitive market and suppose the government reduces gasoline taxes by fifty cents per gallon. What will happern to the consumer price? a. It will fall by fifty cents. b. It will fall by more than fifty cents. c. It will fall by less than fifty cents

Explanation / Answer

1. The right answer is option d. 50% decrease in quantity demanded.

Explanation: Price elasticity demand is the ration of the % change in quantity demanded and the % change in price.

So, price elasticity of demand = % change in quantity/ % change in price

putting the values, we get:

-5 = % change in quantity/10%

So, % change in quantity = -5 * 10% = -50%

So, quantity will decline by 50%.

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