CHAPTER 2 QUIZ

1. Why is the demand curve downward sloping?

ANSWER: Because of the inverse relationship between price and quantity demanded

2. A luxurious Rolex Submariner is a good example of what type of good?

ANSWER: Veblen Good

3. The price for a loaf of bread used to be P45, now it has risen to P50. At the current price,
quantity demanded has been 400 loaves per week, then it was 600 loaves. Compute for the
price elasticity and describe how elastic the demand for loaf bread is.
ANSWER: 3. Elastic

4. The law of demand states that

ANSER: Quantity demanded for a good will decrease when its price increases and will increase
when its price decreases, ceteris paribus

5. When small changes in price lead to relatively large changes in quantity demanded we say that
ANSWER: Demand is elastic

6. After the threat of a virus that infected the chicken industry, demand for pork meat increased
substantially. In this case we consider chicken and pork meat to be
ANSWER: Substitutes

7. A graphical representation of the relationship between quantity demanded and price

ANSWER: Demand curve

8. Because of the looming war in Eastern Europe, prices of petroleum derived products have been
rising which has lead to motorists buying more of it despite the fact of the price increasing. How
do we refer to these kinds of goods?

ANSWER: Staple goods with little to no substitutes

9. Why is the concept of ceteris paribus important to economic analysis?
ANSWER: Inorder to determine the effect of one variable to another variable and isolate other
effect

10. A change in demand represents

ANSWER: A shift in the demand curve

11. When changes in price lead to exaggeratedly large changes in quantity demanded we say that
ANSWER: Demand in perfectly elastic
12. Identified poor people in India have been recipients of government subsidies to improve their
nutrition. However, recent studies have shown that these recipients have actually decreased
consumption for crucial calories and have instead bought more expensive sources of calories.
Before, the recipients bought 45 units of canned sardines, today, only 30 units on a weekly
average. With the following changes to their income: Rs1000 before and Rs15000 after the
policy implementation. Compute for the income elasticity of canned sardines and determine
what type of good it is.
ANSWER: 0.7. Giffen good
13. Why is the concept of elasticity important to price-setting?
ANSWER: It informs the producer of how much change can actually be made without any
serious consequences to profit
14. A coffin is a good example of a good that has what type of elasticity?

ANSWER: Perfectly Inelastic demand curve

15. Wars and skirmishes can have devastating impacts to neighboring economies. For instance,
prices for basic commodities can artificially surge without any changes to supply. If the quantity
demanded for wheat surged from 30 to 50 while price for potatoes increased from 500 to 600.
What is the cross-price elasticity and what kind of good is wheat?
ANSWER: 3.3. Substitute