QUESTION ONE:TRUE/FALSE

a)If a product has price elasticity of demand greater than 1 then a rise in the price of the good

will lead to a rise in total revenue received.

b)An inferior good is one for which demand increases as income increases.

c)Goods A and B are complementary if a rise in the price of good A leads to a fall in the

demand for good B.

d)Price elasticity of supply refers to how supply for a good responds to a change in the

good's price.

e)The incidence of a tax refers to the relative tax burden on the consumer and producer.

QUESTION TWO

Price k Quantity demanded per week Quantity supplied per week

20200

40164

60128

80812

100416

a) What is the price elasticity of demand when the price increases from k40 to k60?

b) What is the effect of a price increase from k40 to k60 on the total revenue?

c) Calculate the price elasticity of supply following a price increase from k60 to k80.

QUESTION 3

While the demand for salt is said to be inelastic, the demand for automobiles is said to be elastic. Use an appropriate diagram to carry out a comparative static analysis and explain the difference in the effects of an increase in the supply of both salt and automobiles.

QUESTION 4

1. If the following were to occur in Zambia, what will happen to the price elasticity of demand for Ulendo Taxi? Will it increase, decrease, or remain the same? Explain your answer.

a. Uber, an American multinational taxi service company established its operations in Zambia?

b. The government decided to ban the use of ordinary taxis which are not registered under any company.

c. Due to ad campaigns, Zambians believe that Ulendo taxis are much safer and cheaper than ordinary taxis.

2. Explain what happens and why to the sales of an inferior good during a recession?