Question

1 If the price of a substitute good decreases the Demand for the other good will _______________ resulting in it’s price _________________ and it’s quantity demanded ____________________.

2. If a good’s price increases from $20 to $22 and its elasticity of demand is -2 quantity demanded will decrease by _______________.

3. If the price elasticity of demand is -.5 the company needs to __________________ price to increase total revenue.

4. Two goods are substitutes if their cross-price elasticity is _________________.

5. If two good’s have a negative cross-price elasticity and the price of one increases the demand for the other will ________________.

6. If people’s income increase and the Demand for a good shifts to the right that good must be a __________________ good.

7. If the Demand for a good decreases and the Supply increases the equilibrium price will __________________________________________and quantity will _________________.

8. If the elasticity of demand is -.2, Demand is ___________________, and total revenue can be increased by ____________________ the price.

9. Total revenue is at it’s maximum when the elasticity of demand is ________________.

10. If Demand is perfectly vertical the elasticity of demand is perfectly __________________________.

11. As a result of the Law of Demand any good’s own price-elasticity will always be _____________.

12. If the price decreases from $10 to $8 and the quantity demanded increases from 50 units to 55 units the price-elasticity of demand at $10 is _______________________. Thus the price elasticity of demand is _______________________ and therefore total revenue can be increased by ________________________ the price.

13. The elasticity of demand gives the _______________ change in quantity demanded give the __________________ change in price.

14. If Demand is relatively elastic and Supply is also relatively elastic and the government imposes a price ceiling below the market-clearing price the ___________________ will be ____________ than if Supply and Demand were relatively ___________________. (Hint: elastic Supply and Demand are flat, inelastic steeper so draw the two cases imposing a price below the equilibrium and see which case gives you a bigger disturbance)

15. Demand is inelastic is the price elasticity is _________________then one and is elastic if the price elasticity is ________________then one in absolute value.

Answer 1

Ans.1- decrease, price will fall , quantity will fall

Ans.2- 20%

Ans.3- Increase

Ans.4- negative

Ans.5- decrease

Ans.6- normal