ECS2601-ACTIVITIES 2018
STUDY UNIT 2: ELASTICITY
Activity 2.4
Decide whether the following statements are True or False.
T F
1 The words “elasticity” and “slope” are synonymous. X
2 The elasticity of a single point on the demand curve can be determined. X
3 Essential products have a negative income elasticity. X
4 Cross-elasticity is only relevant in the case of related products. X
5 Price elasticity of demand is a theoretical concept with no practical value. X
Multiple-choice questions
1. Elasticity measures …
[1] the slope of a demand curve.
[2] the inverse of the slope of a demand curve.
[3] the percentage change in one variable in response to a 1% increase in another variable.
[4] sensitivity of price to a change in quantity.
2. The price elasticity of demand for a demand curve that has a zero slope is …
[1] zero.
[2] one.
[3] negative but approaches zero as consumption increases.
[4] infinite.
3. A vertical demand curve is …
[1] completely inelastic.
[2] infinitely elastic.
[3] highly (but not infinitely) elastic.
[4] highly (but not completely) inelastic.
4. Along any downward-sloping straight-line demand curve …
[1] both the price elasticity and slope vary.
[2] the price elasticity varies, but the slope is constant.
[3] the slope varies, but the price elasticity is constant.
[4] both the price elasticity and slope are constant.
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,5. If two goods are substitutes, the cross-price elasticity of demand must be
[1] negative.
[2] positive.
[3] zero.
[4] infinite.
Questions with written answers
(1) The cross-price elasticity of demand for peanut butter in comparison with the price of jelly is -0.3. If we
expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut
butter?
Show your calculations. (4)
Activity 2.7
Decide whether the following statements are True or False.
T F
1 In a real competitive market, government intervention is never needed. X
2 To help the poor a floor price is needed on the level of rent for housing. X
3 The price of cigarettes is a typical price on which a maximum will be set. X
Multiple-choice questions
1. When the government controls the price of a product, causing the market price to be below the free market
equilibrium price,
[1] some consumers gain from the price controls and other consumers lose.
[2] all producers gain from the price controls.
[3] both producers and consumers gain.
[4] all consumers are better off.
2. What happens if price falls below the market clearing price?
[1] Demand shifts out.
[2] Supply shifts in.
[3] Quantity demanded decreases, quantity supplied increases, and price falls.
[4] Quantity demanded increases, quantity supplied decreases, and price rises.
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,3. Other things being equal, the increase in rents that occurs after rent controls are abolished is smaller when
[1] the own price elasticity of demand for rental homes is price inelastic.
[2] the own price elasticity of demand for rental homes is price elastic.
[3] the own price elasticity of demand for rental homes has unitary price elasticity.
[4] rented homes and owned homes are complements.
Questions with written answers
(1) The S.A. Department of Agriculture is interested in analyzing the domestic market for corn. The staff
economists estimate the following equations for the demand and supply curves:
Qd = 1,600 – 125P Qs = 440 + 165P Quantities are measured in millions of bushels; prices are measured in rand
per bushel.
a. Calculate the equilibrium price and quantity that will prevail under a completely free market. (4)
b. Calculate the price elasticities of supply and demand at the equili brium values. (4)
c. The government currently has a R4.50 bushel support price in place. What impact will this support price have
on the market? Will the government be forced to purchase corn under a program that requires them to buy
up any surpluses? If so, how much? (4)
Page 3 of 53
, STUDY UNIT 3: CONSUMER BEHAVIOUR
Activity 3.1
Decide whether the following statements are True or False.
T F
1 A curve that represents all combinations of market baskets that provide the same level of utility X
to a consumer is called an isoquant.
2 If indifference curves cross, then the assumption of a diminishing marginal rate of substitution is X
violated.
Multiple-choice questions
1. Which of the following is NOT an assumption regarding people’s preferences in the theory of consumer
behaviour?
[1] Preferences are complete.
[2] Preferences are transitive.
[3] Consumers prefer more of a good to less.
[4] All of the above are basic assumptions about consumer preferences.
2. The assumption of transitive preferences implies that indifference curves must …
[1] not cross one another.
[2] have a positive slope.
[3] be L-shaped.
[4] be convex to the origin.
3. If a market basket is changed by adding more of at least one good, then rational consumers will …
[1] rank the market basket more highly after the change.
[2] more likely prefer a different market basket.
[3] rank the market basket as being just as desirable as before.
[4] be unable to decide whether the first market basket is preferred to the second or vice versa.
4. A consumer prefers market basket A to market basket B, and prefers market basket B to market basket C.
Therefore, A is preferred to C. The assumption that leads to this conclusion is …
[1] transitivity.
[2] completeness.
[3] all goods are good.
[4] diminishing MRS.
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STUDY UNIT 2: ELASTICITY
Activity 2.4
Decide whether the following statements are True or False.
T F
1 The words “elasticity” and “slope” are synonymous. X
2 The elasticity of a single point on the demand curve can be determined. X
3 Essential products have a negative income elasticity. X
4 Cross-elasticity is only relevant in the case of related products. X
5 Price elasticity of demand is a theoretical concept with no practical value. X
Multiple-choice questions
1. Elasticity measures …
[1] the slope of a demand curve.
[2] the inverse of the slope of a demand curve.
[3] the percentage change in one variable in response to a 1% increase in another variable.
[4] sensitivity of price to a change in quantity.
2. The price elasticity of demand for a demand curve that has a zero slope is …
[1] zero.
[2] one.
[3] negative but approaches zero as consumption increases.
[4] infinite.
3. A vertical demand curve is …
[1] completely inelastic.
[2] infinitely elastic.
[3] highly (but not infinitely) elastic.
[4] highly (but not completely) inelastic.
4. Along any downward-sloping straight-line demand curve …
[1] both the price elasticity and slope vary.
[2] the price elasticity varies, but the slope is constant.
[3] the slope varies, but the price elasticity is constant.
[4] both the price elasticity and slope are constant.
Page 1 of 53
,5. If two goods are substitutes, the cross-price elasticity of demand must be
[1] negative.
[2] positive.
[3] zero.
[4] infinite.
Questions with written answers
(1) The cross-price elasticity of demand for peanut butter in comparison with the price of jelly is -0.3. If we
expect the price of jelly to decline by 15%, what is the expected change in the quantity demanded for peanut
butter?
Show your calculations. (4)
Activity 2.7
Decide whether the following statements are True or False.
T F
1 In a real competitive market, government intervention is never needed. X
2 To help the poor a floor price is needed on the level of rent for housing. X
3 The price of cigarettes is a typical price on which a maximum will be set. X
Multiple-choice questions
1. When the government controls the price of a product, causing the market price to be below the free market
equilibrium price,
[1] some consumers gain from the price controls and other consumers lose.
[2] all producers gain from the price controls.
[3] both producers and consumers gain.
[4] all consumers are better off.
2. What happens if price falls below the market clearing price?
[1] Demand shifts out.
[2] Supply shifts in.
[3] Quantity demanded decreases, quantity supplied increases, and price falls.
[4] Quantity demanded increases, quantity supplied decreases, and price rises.
Page 2 of 53
,3. Other things being equal, the increase in rents that occurs after rent controls are abolished is smaller when
[1] the own price elasticity of demand for rental homes is price inelastic.
[2] the own price elasticity of demand for rental homes is price elastic.
[3] the own price elasticity of demand for rental homes has unitary price elasticity.
[4] rented homes and owned homes are complements.
Questions with written answers
(1) The S.A. Department of Agriculture is interested in analyzing the domestic market for corn. The staff
economists estimate the following equations for the demand and supply curves:
Qd = 1,600 – 125P Qs = 440 + 165P Quantities are measured in millions of bushels; prices are measured in rand
per bushel.
a. Calculate the equilibrium price and quantity that will prevail under a completely free market. (4)
b. Calculate the price elasticities of supply and demand at the equili brium values. (4)
c. The government currently has a R4.50 bushel support price in place. What impact will this support price have
on the market? Will the government be forced to purchase corn under a program that requires them to buy
up any surpluses? If so, how much? (4)
Page 3 of 53
, STUDY UNIT 3: CONSUMER BEHAVIOUR
Activity 3.1
Decide whether the following statements are True or False.
T F
1 A curve that represents all combinations of market baskets that provide the same level of utility X
to a consumer is called an isoquant.
2 If indifference curves cross, then the assumption of a diminishing marginal rate of substitution is X
violated.
Multiple-choice questions
1. Which of the following is NOT an assumption regarding people’s preferences in the theory of consumer
behaviour?
[1] Preferences are complete.
[2] Preferences are transitive.
[3] Consumers prefer more of a good to less.
[4] All of the above are basic assumptions about consumer preferences.
2. The assumption of transitive preferences implies that indifference curves must …
[1] not cross one another.
[2] have a positive slope.
[3] be L-shaped.
[4] be convex to the origin.
3. If a market basket is changed by adding more of at least one good, then rational consumers will …
[1] rank the market basket more highly after the change.
[2] more likely prefer a different market basket.
[3] rank the market basket as being just as desirable as before.
[4] be unable to decide whether the first market basket is preferred to the second or vice versa.
4. A consumer prefers market basket A to market basket B, and prefers market basket B to market basket C.
Therefore, A is preferred to C. The assumption that leads to this conclusion is …
[1] transitivity.
[2] completeness.
[3] all goods are good.
[4] diminishing MRS.
Page 4 of 53
