1. Give an example of the principal-agent problem.
2. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:
A) 4.00.
B) 2.09.
C) 1.37.
D) 3.94.
***Use the midpoints formula to determine the answer
3. If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:
A) demand is elastic.
B) demand is inelastic.
C) demand is of unit elasticity.
D) not enough information is given to make a statement about elasticity.
***Use the Total Revenue Test to determine the answer
4. The elasticity of demand for a product is likely to be greater:
A) if the product is a necessity, rather than a luxury good.
B) the greater the amount of time over which buyers adjust to a price change.
C) the smaller the proportion of one's income spent on the product.
D) the smaller the number of substitute products available.