Quiz1 (Elasticity) In general, elasticity is ‘a. the friction that develops between buyers and sellers in a market b. a measure of how much government intervention is involved in a market. ‘a measure of how much buyers and sellers respond to changes in market conditions. a measure of the competitive nature of a market. Economists use the concept of price elasticity of demand to measure how much buyers respond to changes in the price of a good. b. how much sellers respond to changes in the price of a good c. how much worse off consumers are when the price of goods rises. d. how much demand responds to changes in buyer's income. Demand is said to be inelastic a. if price of good responds only slightly to changes in demand. b. Ifdemand shifts only slightly when price of the goods changes. c. If buyers respond substantially in changes in the price of goods. @ ifthe quantity demanded changes oniy slightly when the price of the goods changes. If there are very few substitute for good A, then a. the demand of good A would tend to be cross elastic. b. the demand of good A would tend to be price elastic. ©» the demand of good A would tend to be price inelastic. the demand of good A would tend to be income elastic. Demand is unit elastic if a. elasticity is less than 1. © elasticity is equal to 1 ©. elasticity is greater than 1 d. elasticity is equal to 0. ‘Assume that a 4 % increase in income results in a 2 % increase in quantity demanded of a good. The income elasticity of demand for the good is ‘a. negative and therefore the good is an inferior good gy = 2 768 b. negative and therefore the good is a normal good. + c. positive and therefore the good is an inferior good. @ positive and therefore the good is @ normal good. The main determinants of price elasticity of supply is a. market condition. @® time. ‘c. number of substitutes d. luxuries vs. necessitiesRefer to the table below for question 8 and 9. (RM) 30000 50 000 30 10 Income QTY p | QTY oy x 2 5 8. What is the income elasticity of Good Y if income decreases from RMS50 000 to RM30 000? a. -1.10 Ge cov b. 1.10 * _____ GC asa 3e cow ~Secow d. 3.34 Fg x0 $2-5y 9. Good Y is a. not related to income. © an inferior good. ©. price inelastic .4 anormal good 10.To an economist would estimate b. price elasticity of demand: Supply © cross elasticity of demand, d._ income elasticity of demand. 11. If cross price elasticity of a demand is 1.25, then the two goods would be a. Complementary goods b. luxury goods ¢. normal goods ©@® substitute goods 12. Food and clothing tend to have a. large income elasticities because they are relatively cheap. b. large income elasticities because they are necessities. ©. small income elasticities because consumers will buy more at higher income level than they will at lower income level. ; small income elasticities because consumers regardless of their incomes, will buy these goods13. Suppose that an increase in the price of carrots from RM1.20 to RM1.40 per kg raises the amount of carrots that farmers produce from 1.2 million kg to 1.6 million kg. What would be the elasticity of supply? ere a. 0.54 ee ee ees x6 b. 0.50 Zs pao - 90 @ 196 mcd d. 1.86 # Refer to the graph below for question 14 ~ 15. P i fl iv vi RassenSSpeenee SecA os Soe 14, Which supply curve is perfectly elastic? al bl co. Ill av eV ow 15. Which supply curve is inelastic? al b. Il c. Il @wW eV f VIPricex ‘Qty demanded (units) Consumer (RM) | Good | Good Y Good Z _|_ income (RM) 1 100 1000 10 800 ote = 50 © 500 © 204 +700 3 25 250 40 600 4 20 200 06 | © 500 _ 5 10 too [7 180 400 Based on the table below answer question 16 and 17. 16.If price of good X increases from RM2 to RMS, calculate:- a. price elasticity of demand and state whether demand is elastic or inelastic. (3) b. cross elasticity of demand for good Y with respect to good X (2) c. cross elasticity of demand for good Z with respect to good X (2) 17. Determine type of good Z if consumer's income increases from RMS00 to RM700. (3) lea) [e- So ae —— ee be 0-9 « OGL “053, Can dvahe) * ) 2 loo -S8 | 0-66 Woe yee ca) ,< #0 zy mee Be Fup - 8? 9 75 * as 1-28 Cinfener. cre! )