Introduction to Economics EC100

Lekima Nalaukai Semester I, 2023

Tutorial 4 Questions
A. Multiple Choice

1. Whether a good is a luxury or necessity depends on the

A. price of the good.
B. preferences of the buyer.
C. intrinsic properties of the good.
D. scarcity of the good.

2. Which of the following is likely to have the most price elastic demand?
A. clothing
B. blue jeans
C. Tommy Hilfiger jeans
D. All three would have the same elasticity of demand because they are all related.

3. For a particular good, a 2 percent increase in price causes a 12 percent decrease in

quantity demanded. Which of the following statements is most likely applicable to this
good?
A. There are no close substitutes for this good.
B. The good is a luxury.
C. The market for the good is broadly defined.
D. The relevant time horizon is short.

4. A t-shirt maker would be willing to supply 75 t-shirts per day at a price of $18.00 each. At
a price of $20.00, the t- shirt maker would be willing to supply 100 t-shirts. Using the
midpoint method, the price elasticity of supply for t- shirts is about
A. 0.37, and supply is elastic.
B. 0.37, and supply is inelastic.
C. 2.71, and supply is elastic.
D. 2.71, and supply is inelastic.

5. Total revenue will be at its largest value on a linear demand curve at the
A. top of the curve, where prices are highest.
B. midpoint of the curve.
C. low end of the curve, where quantity demanded is highest.
D. None of the above is correct.
Introduction to Economics EC100
Lekima Nalaukai Semester I, 2023
Tutorial 4 Questions
6. Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year,
his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors
constant, it follows that Max
A. considers athletic shoes to be necessities.
B. considers athletic shoes to be inferior goods.
C. considers athletic shoes to be normal goods.
D. has a low price elasticity of demand for athletic shoes.
Introduction to Economics EC100
Lekima Nalaukai Semester I, 2023
Tutorial 4 Questions
B. Short Answers

1. Define income elasticity of demand.

2. Define the Price Elasticity of Supply and discuss its determinants

3. How might a drought that destroys half of all farm crops be good for farmers? If such a
drought is good for farmers, why don’t farmers destroy their own crops in the absence of
a drought?

4. If demand is elastic, how will an increase in price change total revenue? Explain
 Introduction to Economics EC100
Lekima Nalaukai Semester I, 2023
Tutorial 4 Questions
C. Calculations

1. The table below sets the demand and supply of ice cream at Damodar City.

Price of Ice- Quantity of Quantity of

Cream Cone Cones Cones Supplied
Demanded
$0.00 12 0
$0.50 10 1
$1.00 8 2
$1.50 6 3
$2.00 4 4
$2.50 2 5
$3.00 0 6

A. Plot the demand and supply curve based on the information given above.

B. Calculate the price elasticity of demand when price changes from $2 to $2.50.

2. Suppose that your demand for DVD is as follows:

Price QD QD
($) (Income = $10,000) (Income = $12,000)
8 40 DVDs 50 DVDs
10 32 45
12 24 30
14 16 20
16 8 12

A. Calculate the price elasticity of demand as the price of DVD increases from $8 to $10
if:
i. Your income was $10,000 and
ii. When your income is $12,000

B. Calculate your income elasticity of demand as your income increases from $10,00 to
$12,000 if:
i. The price is $12 and
ii. The price is $16