Economics: Supply and Demand and Cross Elasticity

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FOUNDATION IN BUSINESS
BUS0615/PRINCIPLES OF ECONOMICS

TUTORIAL 4
Reading: Chapter 4 of the textbook.

SECTION A

1. The price elasticity of demand is the percentage change in price divided by the percentage change in quantity demanded. F
2. Demand is said to be inelastic when a reduction in price results in a decrease in total revenue. T / F
3. When the price of coffee increases 8%, quantity demanded decreases 5%. The elasticity of coffee must be inelastic. (PERCENTAGE OF PRICE IS GREATER THAN THE PERCENTAGE OF QUANTITY BY 1/1/2) T
4. The more substitutes there are for the product the more price elastic the demand for the product is. T
5. A vertical demand curve may be described as perfectly price inelastic. T
6. If the elasticity coefficient of demand for coconuts is 0.40, then a 20% fall in price will result in an 8% fall in quantity demanded. (QUANTITY DEMANDED INCREASE BY 8%) F
7. If the quantity demand of tea decreases by 2% when the price of coffee decreases by 8%, the cross elasticity of demand between tea and coffee is 0.25. T / F
8. If the cross elasticity of demand between fish and chicken is 2, then a 2% increase in the price of fish will result in a 4% decrease in the quantity of chicken demanded. (QUANTITY OF THE CHICKEN INCREASES CAUSE IT ACTS AS A SUBSTITUTE GOODS) F
9. If bus travel is an inferior good, then its income elasticity of demand will be negative. T / F
10. When income changes, the quantity demanded for a commodity remains the same, the income elasticity of demand for the good is negative one.

T / F
11. The cross elasticity of demand for product X with respect to the price of product Y is 1.00. It can be concluded that X and Y are complementary products. T / F
12. A positive income elasticity of demand coefficient indicates that a product is an inferior good. T / F
13. A vertical supply curve may be described as perfectly price inelastic. T / F
14. A supply curve that has a coefficient

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