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Question 1

Average income increases from £20,000 p.a. to £22,000 p.a. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?

a) Demand is price inelastic

b) The good is inferior

c) Income elasticity is -2

d) The product is normal

Question 2

The price decreases from £2,000 to £1,800. Quantity demanded per year increases from 5000 to 6000 units. Which of the following is correct?

a) The price elasticity of demand is -2

b) The good is inferior

c) Income elasticity is + 0.5

d) Income elasticity is + 2

Question 3

If the price elasticity of demand is unit then a fall in price:

a) Reduces revenue

b) Leaves revenue unchanged

c) Increases revenue

d) Reduces costs

Question 4

If the cross elasticity of demand is -2:

a) The products are substitutes and demand is cross price elastic

b) The products are substitutes and demand is cross price inelastic

c) The products are complements and demand is cross price elastic

d) The products are complements and demand is cross price inelastic

Question 5

The income elasticity is +2 and income increases by 20%. Sales were 5000 units, what will they be now?

a) 3000

b) 7000

c) 5500

d) 4500

Question 6

The price elasticity of demand is a negative number this means:

a) Demand is price elastic

b) Demand is price inelastic

c) The demand curve is downward sloping

d) An increase in income will reduce the quantity demanded

Question 7

Price increases from 10 to 12 pence and the price elasticity of demand is -0.5. The quantity demanded was 500 units. What will it be now?

a) 550 units

b) 500 units

c) 450 units

d) 490 units

Question 8

If demand is price inelastic:

a) An increase in price must raise profits

b) An increase in price decreases revenue

c) An increase in price increases revenue

d) A decrease in price reduces sales

Question 9

For an inferior good:

a) The price elasticity of demand is negative; the income elasticity of demand is negative.

b) The price elasticity of demand is positive; the income elasticity of demand is negative.

c) The price elasticity of demand is negative; the income elasticity of demand is positive.

d) The price elasticity of demand is positive; the income elasticity of demand is positive.

Question 10

For a normal good: