BM1704

Dela Cruz, Shiela Jane L. BSA-2A

eLMS REVIEW: ELASTITY OF DEMAND

I. TRUE OR FALSE. (10 items x 2 points)

FALSE 1. If the income elasticity of demand is positive, the commodity is considered an

inferior
good.

Answer: An inferior good is a good whose demand decreases as incomes increases or

vice - versa. If the income elasticity of demand is negative, the product is an inferior
good. And because it is negative not positive.

TRUE 2. If two (2) goods have a cross price elasticity of zero, they are unrelated to each
other.
TR TRUE3. The cross elasticity for substitutes is always positive.

FALSE 4. The larger the number of income elasticity, the less responsive is the good to
changes in income.

Answer: A large number for income elasticity means a large change in demand occurs
when income changes. It is more responsive and not less responsive. The larger the
number of the income elasticity, the more responsive demand is to a change in income.

FALSE 5. The price elasticity of life-saving medicine is equal to one (1).

Answer: According to the factors that influence price elasticity if the good is a
necessity, quantity demanded is not very responsive to prose and demand is
inelastic. It is less than 1 or inelastic not equal to one. Life saving medicine is
considered as necessity since life would not be possible without it.
 TRUE 6. Goods with many substitutes have an elastic demand.

FALSE 7. Marginal revenue cannot be affected by price elasticity.

Answer: If demand is inelastic the marginal revenue will become negative and if
the demand is elastic the marginal revenue will be positive. the marginal revenue
can be affected by price elasticity. There's have a formula that shows how the
marginal revenue will be affected when one unit of the product is sold.

FALSE 8. The income elasticity of luxury goods is between zero (0) and one (1).

Answer: Income elasticity of demand for necessities will be between zero and one.
While the income elasticity of demand for luxuries is greater than 1, the larger the
value is the greater the luxury. it is not the luxuries things it is the necessities. It is
not the luxuries things it is the necessities.

FALSE 9. For firms with inelastic demand, an increase in price would cause a large
increase in revenue.

Answer: According to the relationship of elasticity to revenues if demand is

inelastic, charging a lower price will not cause much of an increase in the quantity
demanded, total revenue will decrease. The higher price that the firm receives from
the goods offsets the slightly smaller quantity of goods that the firm sells.

FALSE 10. Firms become more inelastic to price changes as time passes.

Answer: The longer the period of time since the price change, the easier it is to
adjust spending. Adjusting becomes easier and demand becomes elastic. Firms
become more elastic not inelastic to price changes as time passes.

04 eLMS Review 1 *Property of STI

Page 1 of 1