If the Price Elasticity of Demand Is Computed for Two

question 94

Multiple Choice

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

• A) product A is more elastic than product B.
• B) product B is more elastic than product A.
• C) consumers are more responsive to price changes in product A than in product B.
• D) products A and B must be substitutes.

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Definitions:

Binding Price Ceiling

A government-imposed limit on the price of a good or service that is set below the equilibrium market price, leading to shortages.

Binding Price Ceiling

A price ceiling set below the equilibrium price, leading to a shortage of goods since demand exceeds supply at the set price.

Market Shortage

A condition in which the quantity demanded of a good exceeds the quantity supplied at the market price.

Binding Price Ceilings

Regulatory limits on the price of goods and services that are set below the market equilibrium price, causing shortages.