If the Price Elasticity of Demand for Cigarettes Is 0

question 64

Multiple Choice

If the price elasticity of demand for cigarettes is 0.4,

• A) The demand is very elastic.
• B) A 10 percent increase in price will cause quantity demanded to fall by 40 percent.
• C) The demand is very inelastic.
• D) A 5 percent decrease in price will cause quantity demanded to rise by 10 percent.

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Definitions:

Average Cost Curve

A graphical representation showing the average cost of production at different levels of output.

Production Function

A mathematical model describing the relation between input quantities and their respective outputs.

Marginal Products

A new definition for the additional units of output gained by employing one more unit of a specific input, keeping all other inputs constant.

Law of Diminishing Returns

An economic principle stating that as investment in a particular area increases, the rate of profit from that investment, after a certain point, cannot continue to increase if other inputs remain the same.