Q3. Consider the following statements and decide which are true. Record the correct combination from the possibilities listed below the list of statements. Where relevant you should assume that the *ceteris paribus* assumptions hold true.

1. | Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. |

2. | If an elasticity coefficient is equal to –3.5 then we can conclude that a 1% change in the independent variable is associated with a 3.5% change in the dependent variable in the opposite direction. |

3. | Elasticity measures the responsiveness of an independent variable to changes in a dependent variable. |

4. | When demand for farm products is price inelastic, farmers’ revenues rise in a drought because the percentage change in price is larger than the percentage change in quantity demanded. |

5. | The cross price elasticity of demand for goods A and B is –0.66. This indicates that the two goods are complements. |

6. | The price elasticity of a nearly vertical linear demand curve would be close to zero. |

7. | Your friend tells you that he has increased the price of “Old Grandma’s Pies” because he knows that demand for them is price elastic and that this implies that his revenues will increase. |

8. | If the demand for farm products is price elastic, farmers’ incomes fall when their crop yields rise |

9. | When the price elasticity of demand for tobacco products is –0.4 and a 1% increase in the budget on the Quit Smoking advertising campaign reduces smoking by 1%, then an increase in the Quit Smoking campaign budget will have a larger impact on smoking than a 1% increase in cigarette taxes. |

10. | Inferior goods have negative income elasticities whereas normal goods have positive income elasticities. |

11. | If we do not ignore the sign then the value of the price elasticity of demand coefficient gets larger as we move down the demand curve (i.e. as price falls) |

12. | The income elasticity of demand for some normal goods is greater than one. This indicates that demand for those goods is price elastic. |

13. | The price elasticity of supply for a linear supply curve is positive. |

14. | A vertical supply curve is called a perfectly elastic supply curve. |

15. | An income elasticity of 2.45 signifies that a 1% change in income will result in a 2.45% change in quantity demanded. |

Choose the combination of statements that you think contains the **largest** **number** of TRUE statements.

A | 1 | 2 | 4 | 6 | 7 | 8 | 10 | 12 | 15 |

B | 2 | 4 | 5 | 7 | 9 | 10 | 11 | 13 | 15 |

C | 2 | 3 | 5 | 6 | 7 | 11 | 12 | 13 | 14 |

D | 1 | 3 | 6 | 7 | 8 | 10 | 11 | 12 | 14 |

E | 3 | 6 | 7 | 8 | 11 | 12 | 13 | 14 | 15 |

F | 1 | 4 | 5 | 8 | 9 | 10 | 12 | 13 | 14 |

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