If Price Elasticity of Demand for a Good Is 2

question 12

Multiple Choice

If price elasticity of demand for a good is 2.0, this implies that consumers would

• A) buy twice as much of the good if price falls by 10 per cent.
• B) require a 2 per cent cut in price to raise quantity demanded of the good by 1 per cent.
• C) buy 2 per cent more of the good in response to a 1 per cent cut in price.
• D) require at least a R2 increase in price before showing any response to the price increase.

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Definitions:

Coupon Bond

A type of bond that pays the holder a fixed interest rate (coupon) periodically until the maturity date, at which point the principal amount is paid back.

Horizon Analysis

Forecasting the realized compound yield over various holding periods or investment horizons.

Yield Curve

A graphical representation showing the relationship between the interest rates of bonds of the same credit quality but different maturities.

Holding Period

The duration of time an investment is held before being sold.