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Questions 1:
Over a given period, the price of a commodity falls by 5.0%, and the quantity demanded rises by 7.5%. The price elasticity of demand for the commodity is best described as:
A、 perfectly elastic.
B、 elastic.
C 、inelastic.
Questions 2:
Assume economic activity is accelerating, inflation is increasing modestly, and unemployment is low. The economy is most likely in which phase of the business cycle?
A 、Peak
B、 Early expansion
C 、Late expansion
B is correct. If demand is elastic, a 1 percent reduction in price increases the quantity sold by more than 1 percent. Therefore, when demand is elastic, the magnitude (ignoring algebraic sign) of the coefficient is greater than one. In this case, price elasticity is:
C is incorrect because if demand is inelastic, a 1 percent price reduction increases the quantity sold by less than 1 percent.
A is incorrect because if demand is perfectly elastic, a 1 percent price reduction increases the quantity demanded by an infinitely large percentage.
C is correct. The late expansion phase is characterized by acceleration of growth rate, decreasing of unemployment rate, and increasing of inflation rate.
A is incorrect because the peak phase is characterized by deceleration of growth rate.
B is incorrect because the early expansion phase is not characterized by low unemployment.
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