Question

As the slope of the supply curve increases, the price elasticity of supply ____________ . A horizontal supply curve is perfectly ___________ .

1. decreases, elastic
2. decreases, inelsastic
3. increases, elastic
4. increases, inelastic

Which of the following price elasticities of demand would indicate inelastic demand?

1. 0.5
2. 1
3. 2
4. 10

Which of the following goods would you expect to have the lowest price elasticity of demand?

1. Rice
2. Diamonds
3. Yachts
4. Vacation Homes

Suppose that you measure the income elasticity of demand for ice cream and find that it is equal to 0.5. Which of the following could you conclude from this number?

1. Ice cream is a normal good
2. Ice cream is an inferior good
3. Demand for ice cream is elastic
4. Demand for ice cream is inelastic

Which of the following best explains why the supply of housing in Detroit is much less elastic than in other cities?

1. The high number of vacant houses in Detroit discourages builders from constructing new homes, even if prices rise

2. There is a fixed amount of land in Detroit, which limits the number of new houses that can be built if prices rise

3. People find Detroit to be an undesirable place to live and wouldn't invest in houses in Detroit, even if pices rise

4. The automotive industry's dominance of the economy in Detroit discourages building homes in the city, even if prices rise

Answer 1

Q1. Option C. When the slope increases the demand for good becomes elastic and a horizontal supply curve is perfectly elastic curve

Q2. Option A. As the value is less than 1

Q3. Option A. As it is a basic good

Q4. Option A. The income elasticity of normal good is less than 1 as it is a necessity

Q5. Option A