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Price Elasticity Statements

What is wrong?
In each of the statements that follow, something is wrong. Identify what is wrong in the following statements.

1. If price rises, and total revenue falls, then demand is inelastic.
2. The elasticity coefficient is greater than 1 for a good that is income inelastic.
3. Cars have move substitutes than Ford cars.
4. As we move down a demand curve, price elasticity of demand rises.
5. For inelastic demand, quantity demanded changes proportionately more than price changes.
6. A perfectly inelastic demand curve can be downward-sloping.
7. The elasticity coefficient is greater than zero for goods that complement.
8. If demand is inelastic, buyers pay the full tax that is placed on sellers.
9. If income elasticity of demand is 1.24 it means that for every 1 percent change in income there is a 1.24 percent change in price.
10. Price elasticity of supply measures the responsiveness of quantity supplied to changes in income.

Solution Preview

1. If price rises, and total revenue falls, then demand is inelastic. <-- no, it's elastic.

2. The elasticity coefficient is greater than 1 for a good that is income inelastic. <-- income elastic. (it's a luxury good)

3. Cars have move substitutes than Ford cars. <- there's nothing wrong with this. Cars have more ...

Solution Summary

In this solution the incorrect part of each statement is identified.

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