Question from Past Microeconomics Qualifying ExamEdit
Spring 2005 - Section I, Question eight, George Mason University
T,F,U. State first whether the following statements are true, false or uncertain. Then briefly explain your resaoning in four or five sentences. You may use a graph if it helps clairify your answer.
The long run price elasticity of demand for food has been estimated to be 0.6. This is best interpreted to mean a $0.60 increase in the market price of food will decrease the demand for food by 1%.
False. A price elasticity of demand of 0.6 implies that a 1% increase in the price for food will decrease the demand for food by 0.6%.
Note: Price elasticities are usually negative (because the demand curve slopes downward ;)) so this could either be a tricky question referring to a Giffen good, or just a mistake.