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Questions 1:
The elasticity of demand for a good is most likely greater when:
A、 a lesser proportion of income is spent on the good.
B、 the good is a necessity.
C 、the adjustment to a price change takes a longer time.
Questions 2:
Holding the working-age population constant, if the labor force participation ratio declines while the number of people employed remains unchanged, the unemployment rate will most likely:
A、 increase.
B 、remain unchanged.
C、 decrease.
C is correct. For most goods and services, the long-run demand is much more elastic than the short-run demand. For example, if gas prices rise, consumers cannot quickly change their mode of transportation but will likely do so in the longer run.
A is incorrect. The greater the proportion of income spent on a good, the more elastic the demand.
B is incorrect. Necessities have inelastic demand.
C is correct. For a given working-age population, a decline in the labor force participation rate, often because of an increase in discouraged workers, reduces the labor force. If the number of people employed remains the same while the labor force is smaller, the number of workers defined to be unemployed must be smaller and the unemployment rate lower. The following example illustrates the direction of change.
A is incorrect. As per the table, the unemployment rate would not increase, it would decrease. The numerator and denominator in the unemployment rate calculation are declining by the same number because the number of employed remains unchanged. Both declining by the same number will result in a smaller percentage once divided.
B is incorrect. As per the table, the unemployment rate would not remain unchanged,
it would decrease. The numerator and denominator in the unemployment rate calculation
are declining by the same number because the number of employed remains unchanged.
Both declining by the same number will result in a smaller percentage once divided.
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