If consumers respond to a 10% price reduction by buying twice as much of a particular good, we would conclude that:
A. there was excess demand at the original price.
B. the price elasticity of demand at the original price was less than one.
C. the price elasticity of demand at the original price was greater than one.
D. there was excess supply at the original price.
Answer: C
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Many art galleries keep 60% of the sale price of a painting. However, art galleries do not typically pay the artist while the painting hangs on the wall. This form of contingency contract may be efficient if
A) the artist is less risk averse than the gallery. B) the gallery is less risk averse than the artist. C) the artist is unable to diversify across galleries or paintings. D) the gallery is unable to diversify across artists of paintings.
If the price of corn chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is
A) 0.50. B) 1.67. C) 0.93. D) 2.33.