PART B ; TRUE FALSE QUESTIONS 1. If the elasticity coefficient of supply is 0.7, supply is elastic. 2. The smaller the number of good substitutes for a product, the greater will be the price elasticity of demand for it. 3. The demand for luxury goods is more price elastic than is the demand for necessities. 4. If price changes and total revenue changes in the opposite direction, demand is relatively elastic. 5. Suppose when the price of potatoes rises by 10% the quantity demanded of potatoes decreases by 5%. Then we could conclude that the price elasticity of demand for potatoes is elastic. 6. An increase in consumer's income will cause a decrease in the demand for an inferior good. 7. If price elasticity of demand is less than one then a price increase will gain the producer more revenue. 8. Most generally, the lower the proportion of income spent on a good the lower the value of price elasticity. 9. Perfectly elastic demand refers to a situation in which any price change for the good in question, no matter how small, will produce an "infinite" change in quantity demanded. 10. When the seller increases the price charged for a good with an elastic demand, the seller's revenues will go up. 11. Elasticity is the same as the slope of the demand curve. 12. Income elasticity of demand is always expressed as a positive number (absolute value). 13. When the income elasticity of demand is positive but less than 1, demand is called "income elastic." 14. If a good is inferior and its price rises, the income effect will encourage greater expenditures, at the same time as the substitution effect pushes toward lower expenditures