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1. Multiple Choice: If the price elasticity of demand for a product is less
than one, we say the demand is:
a) Elastic
b) Inelastic
c) Unitary
d) Perfectly elastic
Answer: b) Inelastic
Rationale: Price elasticity of demand less than one indicates that the
percentage change in quantity demanded is less than the percentage
change in price, hence, demand is inelastic.
2. True/False: A Giffen good is a product that people consume more of as
the price rises, violating the basic laws of demand.
Answer: True
Rationale: A Giffen good is an inferior good with an upward-sloping
demand curve, which means as the price increases, the quantity
demanded also increases.
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