1. Give an example of the principal-agent problem.

2. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is:

A) 4.00.

B) 2.09.

C) 1.37.

D) 3.94.

***Use the midpoints formula to determine the answer

3. If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then:

A) demand is elastic.

B) demand is inelastic.

C) demand is of unit elasticity.

D) not enough information is given to make a statement about elasticity.

***Use the Total Revenue Test to determine the answer

4. The elasticity of demand for a product is likely to be greater:

A) if the product is a necessity, rather than a luxury good.

B) the greater the amount of time over which buyers adjust to a price change.

C) the smaller the proportion of one's income spent on the product.

D) the smaller the number of substitute products available.