A local water company decides to increase the price of water by 5 percent. It finds that its revenues increase by 3 percent as a result of this price change. Demand for water in this market is ____________.

1. perfectly elastic
2. perfectly inelastic
3. elastic
4. inelastic
5. unit elastic

When a consumer’s income increases by 5 percent, demand for potatoes decreases by 3 percent. In this case, potatoes are a(n) ____________.

1. normal good
2. perfect substitute
3. inferior good
4. perfect complement
5. inelastic good

A firm knows that the elasticity of demand for its product is 5. By how much does it need to reduce prices in order to increase sales by 10 percent?

1. 1/5 percent
2. 1 percent
3. 2 percent
4. 5 percent
5. 10 percent