Which of the following examples best describes the law of demand?
A) When Alex received a pay hike, his consumption of all goods increased.
B) When the price of gasoline increased, the demand for cars fell.
C) When the price of Nokia phones increased, the demand for Samsung phones increased.
D) When the price of tea increased, the quantity demanded of tea decreased.
2) ________ is the measure of sensitivity of one variable to a change in another.
3) Elasticity is:
A) the sum of the percentage change in two variables.
B) the difference of the percentage change in two variables.
C) the product of the percentage change in two variables.
D) the ratio of the percentage change in two variables.
4) The percentage change in the quantity demanded of a good due to a percentage change in its price is referred to as the:
A) price multiplier.
B) price elasticity of demand.
C) shadow price of the good.
D) consumer surplus.
5) Negative values of the price elasticity of demand of a good can be attributed to:
A) the law of demand.
B) the law of supply.
C) the law of increasing marginal utility.
D) the law of diminishing marginal rate of substitution.
6) Higher price elasticity of demand means that a consumer's demand is:
A) more responsive to price changes.
B) less responsive to price changes.
C) less responsive to income changes.
D) more responsive to income changes.
7) The law of demand is the reason behind:
A) the price elasticity of demand having a positive value.
B) the income elasticity of demand having a positive value.
C) the price elasticity of demand having a negative value.
D) the income elasticity of demand having a negative value.
8) Which of the following is the formula to calculate arc elasticity of demand?
A) Arc elasticity of demand = [(Q2 - Q1) / (Q2/2)] / [(P2 - P1) / (P2/2)]
B) Arc elasticity of demand = [(Q2 + Q1) / (Q2/2)] / [(P2 + P1) / (P2/2)]
C) Arc elasticity of demand = [(Q2 - Q1) / (Q2+ Q1)/2] / [(P2 - P1) / (P2 + P1)/2]
D) Arc elasticity of demand =[(Q1 - Q2) / (Q2 + Q1)] / [(P1 - P2) / (P2 + P1)]
9) When the price of milk is $3 per liter, Steve purchases 20 liters of milk. When the price increases to $6, Steve's consumption falls to 15 liters. Steve's arc elasticity of demand for milk is:
10) Sharon consumes 10 chocolates when the price of one chocolate is $2. If her arc elasticity of demand for chocolates is -1, she consumes ________ chocolates, when the price increases to $4.
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