Deck 3: Elasticity

Question 1

Americans consume 126 grams of sugar per day. Suppose that a sugar tax raises the retail price of sugar from US$2.79 to US$3.39 per pound, and reduces consumption to 120 grams per day. What is the own-price elasticity of demand?

A) -0.23.
B) -0.05.
C) -0.215.
D) -43.

Answer 1

A

Question 2

The government is considering to levy a 10% tax on the sale of cigarettes. How would the effect on tax revenue depend on whether the demand for cigarettes is elastic or inelastic?

A) Elastic demand => less revenue.
B) Elastic demand => more revenue.
C) Inelastic demand => less revenue.
D) None of the above.

Answer 2

A

Question 3

The own-price elasticity of the demand for Luna's product is -0.8. Explain how a 10% price increase would affect the company's revenue.

A) Reduce by 8%.
B) Increase by 8%.
C) Increase by 2%.
D) Insufficient information to calculate.

Answer 3

C

Question 4

The own-price elasticity of the demand for water among urban residential users is -0.20 in summer and -0.06 in winter. Compare the elasticities by season.

A) The demand is inelastic in both seasons.
B) The demand is more elastic in the summer.
C) The demand is less elastic in the winter.
D) All of the above.

Question 5

Microsoft offers Office 365 Education at no charge to educators and students at eligible institutions. Explain how this free service affects the own-price elasticity of demand for Office 365 when the students graduate.

A) Reduces the elasticity.
B) Increases the elasticity.
C) Does not affect the elasticity.
D) None of the above.

Question 6

At the ParkNShop online store, the price of 8kg pack of premium Thai fragrant rice is HK$107.90. Which bias in consumer thinking explains why ParkNShop did not price the rice at HK$108?

A) Sunk-cost fallacy.
B) Status quo bias.
C) Anchoring.
D) None of the above.

Question 7

Changes in the price of an item may affect the income elasticity of demand. True or false?

Question 8

The cross-price elasticity of the demand for gasoline-powered cars with respect to the prices of gasoline is -0.71. Suppose that the price of gasoline increases from 2 to 2.10 euros per liter. How would that affect the demand for gasoline-powered cars?

A) Reduce by 0.71%.
B) Increase by 3.55%.
C) Increase by 5%.
D) None of the above.

Question 9

Electric power producers have a choice of various fuels, including oil, natural gas, coal, and uranium, as well as solar and wind energy. The cross-price elasticity between the demand for wind power plants and the price of coal would be __________.

A) Positive.
B) Negative.
C) Zero.
D) Possibly any of the above.

Question 10

Suppose that the advertising elasticity of the demand for an entertainment channel is 1.3. If the producer raises advertising expenditure by 5%, how would that affect the demand?

A) Increase by 5%.
B) Increase by 1.3%.
C) Increase by 6.5%.
D) None of the above.

Question 11

Americans consume 126 grams of sugar per day. Suppose that a sugar tax raises the retail price of sugar from US$2.79 to US$3.39 per pound, and reduces consumption to 120 grams per day. Calculate the own-price elasticity of demand.

Question 12

The government is considering to levy a 10% tax on the sale of cigarettes. How would the effect on tax revenue depend on whether the demand for cigarettes is elastic or inelastic?

Question 13

The own-price elasticity of the demand for Luna's product is -0.8. Explain how a 10% price increase would affect the company's revenue.

Question 14

The own-price elasticity of the demand for water among urban residential users is
-0.20 in summer and -0.06 in winter. Compare and explain the difference in elasticities by season.

Question 15

Microsoft offers Office 365 Education at no charge to educators and students at eligible institutions. Explain how this free service affects the own-price elasticity of demand for Office 365 when the students graduate.

Question 16

At the ParkNShop online store, the price of 8kg pack of premium Thai fragrant rice is HK$107.90. Use anchoring in consumer thinking to explain why ParkNShop did not price the rice at HK$108.

Question 17

Changes in the price of an item may affect the income elasticity of demand. True or false? Explain.

Question 18

The cross-price elasticity of the demand for gasoline-powered cars with respect to the prices of gasoline is -0.71. Suppose that the price of gasoline increases from 2 to 2.10 euros per liter. How would that affect the demand for gasoline-powered cars?

Question 19

Electric power producers have a choice of various fuels, including oil, natural gas, coal, and uranium, as well as solar and wind energy. Do you expect the cross-price elasticity between the demand for wind power plants and the price of coal to be positive or negative?

Question 20

Suppose that the advertising elasticity of the demand for an entertainment channel is 1.3. If the producer raises advertising expenditure by 5%, how would that affect the demand?