Question 1

Assume Sarah is a CPA who earns $85,000 a year and her favorite entertainment magazine costs her $15 a year.For her,the price elasticity of demand for the magazine is likely to be:
A)elastic.
B)inelastic.
C)perfectly elastic.
D)none of the above.

Accepted Answer

Since the cost of the magazine is only $15 per year, it represents a small percentage of Sarah's annual income. Therefore, the price elasticity of demand for the magazine is likely to be inelastic, meaning that her demand for the magazine will likely not change significantly in response to changes in its price.

Question 2

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $2 to $4,the price elasticity of demand equals:
A)0.2.
B)2.0.
C)1.0.
D)5.0.

Accepted Answer

A

Question 3

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from point E to point F can be described as:
A)elastic.
B)inelastic.
C)unitary.
D)zero.

Accepted Answer

B

Question 4

The more substitutes there are for a product:
A)the less price elastic the demand for the product is.
B)the more price elastic the demand for the product is.
C)the greater the income elasticity for the product.
D)the smaller the income elasticity for the product.

Accepted Answer

When there are more substitutes for a product, consumers have more options and flexibility to switch to a different product if the price of the original product increases. This means that the demand for the product becomes more sensitive to changes in price, making it more price elastic. Conversely, if there are fewer substitutes for a product, consumers have fewer options to switch to, leading to a less price elastic demand.

Question 5

First Choice Cracker company needs to increase the price of crackers by 5%,based on a substantial increase in input costs such as flour.The price elasticity of demand for crackers is 0.4.The company can expect the consumption of cereal to:
A)decrease by 1.5%.
B)increase by 1.5%.
C)decrease by 2.0%.
D)increase by 2.0%.

Accepted Answer

The formula for calculating the percentage change in quantity demanded is:

Percentage change in quantity demanded = (Price elasticity of demand) x (Percentage change in price)

In this case, the price is increasing by 5%, so:

Percentage change in price = 5%

Substituting the given price elasticity of demand of 0.4, we get:

Percentage change in quantity demanded = 0.4 x 5% = 2%

This means that for every 1% increase in price, the quantity demanded decreases by 0.4%. So, for a 5% increase in price, the quantity demanded will decrease by 2%.

Therefore, the consumption of crackers is expected to decrease by 2.0%, which is answer choice C.

Question 6

If the demand for pineapples is unit elastic,the value of the price elasticity of demand for pineapples is:
A)20.
B)2.0.
C)10.0.
D)1.0.

Accepted Answer

A price elasticity of demand of 1 indicates unit elasticity, which means that a percentage change in price will result in an equal percentage change in quantity demanded. Therefore, D is the correct answer.

Question 7

Clear Window Manufacturer wants to increase the quantity of windows it sells by 10%.If the price elasticity of demand is 5 the manufacturer must:
A)increase price by 1.5%.
B)decrease price by 2.0%.
C)decrease price by 1.5%.
D)increase price by 2.0%.

Accepted Answer

The answer of Clear Window Manufacturer wants to increase the...

Question 8

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Using the initial-value method,the demand for cars is:
A)elastic.
B)inelastic.
C)unit elastic.
D)It is not possible to say based on the data given.

Accepted Answer

Using the initial-value method, we can calculate the price elasticity of demand with the following formula:

Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)

Plugging in the values given in the problem, we get:

Price elasticity of demand = [(8000-10000)/10000] / [(29000-25000)/25000] = -0.4

Since the absolute value of the price elasticity of demand is greater than 1, the demand for cars is elastic. This means that a price increase of 16% (from $25,000 to $29,000) led to a decrease in quantity demanded of 20% (from 10,000 to 8,000).

Question 9

The short run price elasticity of demand for gasoline is 0.5,and the long run price elasticity of demand for gasoline is 1.1.Demand for gasoline is ________ in the short run and ________ in the long run.
A)elastic;inelastic
B)inelastic;elastic
C)elastic;unitarily elastic
D)inelastic;unitarily inelastic

Accepted Answer

A price elasticity of demand of 0.5 in the short run indicates that demand is relatively inelastic, meaning that changes in price will result in proportionally smaller changes in quantity demanded. A price elasticity of demand of 1.1 in the long run indicates that demand is relatively elastic, meaning that changes in price will result in proportionally larger changes in quantity demanded. Therefore, the best answer is B, which states that demand is inelastic in the short run and elastic in the long run.

Question 10

When the price of milk increases 6%,quantity demanded decreases 4%.The elasticity for milk is:
A)perfectly elastic.
B)elastic.
C)inelastic.
D)unitary elastic.

Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the percentage change in price is 6% and the percentage change in quantity demanded is -4%. Therefore, the elasticity of demand is -4% / 6% = -0.67. This value is less than 1, which means that the demand for milk is inelastic.

Question 11

An Internet company wants to increase the consumption of Internet packages by 15%.The price elasticity of demand for Internet packages is 2.The telephone company should:
A)lower the price of Internet packages by 30.0%.
B)lower the price of Internet packages by 7.5%.
C)lower the price of Internet packages by 3.0%.
D)raise the price of Internet packages by 0.1%.

Accepted Answer

The formula to calculate the percentage change in quantity demanded is:
% change in quantity demanded = price elasticity of demand x % change in price
We want to increase the consumption of Internet packages by 15%, so we need to find out how much we should lower the price by using the formula above. Let's plug in the numbers we know:
15% = 2 x % change in price
% change in price = 7.5%
Therefore, the company should lower the price of Internet packages by 7.5% to increase the consumption by 15%.

Question 12

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from point A to point B can be described as:
A)elastic.
B)inelastic.
C)unitary.
D)zero.

Accepted Answer

The initial-value method calculates elasticity based on the percentage change in quantity demanded and price from the initial point. If the elasticity is greater than 1, it is elastic.

Question 13

When the price of bricks increases 5%,quantity demanded decreases 15%.The elasticity for bricks is:
A)perfectly inelastic.
B)elastic.
C)inelastic.
D)unitary elastic.

Accepted Answer

The percentage change in quantity demanded is greater than the percentage change in price, indicating that demand is elastic.

Question 14

When Luna Hair Salon raised its hair cut prices by 10% because of an increase in rent cost,it lost a quarter of its customers.The price elasticity of demand for its hair cut is:
A)4.
B)0.25.
C)0.4.
D)2.5.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the quantity demanded decreased by 25% (a quarter of customers lost) and the price increased by 10%. Thus, elasticity = 25% / 10% = 2.5.

Question 15

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $6 to $8,the price elasticity of demand equals:
A)0.7.
B)5.0.
C)1.0.
D)2.0.

Accepted Answer

The initial-value method calculates price elasticity of demand using the formula: (percentage change in quantity demanded) / (percentage change in price). If the price increases from $6 to $8, the percentage change in price is (8-6)/6 = 1/3 or approximately 33.33%. Assuming the percentage change in quantity demanded is the same, the elasticity would be 1.0, indicating unitary elasticity.

Question 16

At a price of $4,a gas station.sold 100 gallons of gasoline per week.When the price rose to $4.5,only 80 gallons were sold per week.Using the initial-value method,the price elasticity of demand for gasoline at Greedy Inc.Gas Station is:
A)0.2.
B)0.16.
C)2.
D)1.6.

Accepted Answer

The initial-value method formula for price elasticity of demand is:
E = [(Q2 - Q1) / Q1] / [(P2 - P1) / P1]

Plugging in the given values, we get:

E = [(80 - 100) / 100] / [(4.5 - 4) / 4] 
E = -0.2 / 0.125 
E = -1.6

Since elasticity is always positive, we take the absolute value:

E = 1.6

Therefore, the price elasticity of demand for gasoline at Greedy Inc. Gas Station is 1.6, which is closest to option B) 0.16 (after taking absolute value).

Question 17

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is decreased from $10 to $8,the price elasticity of demand equals:
A)1.5.
B)5.0.
C)1.0.
D)2.0.

Accepted Answer

The answer of 
-Refer to Figure 5.1.Using the initial-value method,if...

Question 18

At a price of $25,a store can sell 28 picture frames a day.If the price falls to $20,the store can sell 35 picture frames a day.Using the initial-value method,the price elasticity of demand is:
A)1.9.
B)2.5.
C)0.8.
D)1.25.

Accepted Answer

The answer of At a price of $25,a store can...

Question 19

The concept of elasticity applies to:
A)supply only.
B)demand only.
C)neither supply nor demand.
D)both supply and demand.

Accepted Answer

The concept of elasticity applies to both supply and demand. Elasticity measures the degree of responsiveness of supply and demand to changes in price, income, or other variables. It helps in determining the sensitivity of buyers and sellers to changes in market conditions.

Question 20

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Therefore,using initial value,a 1% increase in the price of the car will result in a ________ in the quantity demanded of cars.
A)1.67% decrease
B)1.25% decrease
C)0.8% decrease
D)0.8% increase

Accepted Answer

To calculate the percentage change in quantity demanded, use the following formula:

% Change in Quantity Demanded = ((New Quantity Demanded - Original Quantity Demanded) / Original Quantity Demanded) * 100%

Using the given information:

Original Quantity Demanded = 10,000
New Quantity Demanded = 8,000

% Change in Quantity Demanded = ((8,000 - 10,000) / 10,000) * 100% = -20%

This means that a 1% increase in the price of the car will result in a 20% decrease in the quantity demanded of cars.

To find the specific percentage for a 1% increase:

20% / 100 = 0.2

0.2 x 1 = 0.2

Thus, a 1% increase in price will result in a 0.2% decrease in quantity demanded.

Therefore, the answer is B, a 1.25% decrease is not a choice.

Quiz 5: Elasticity: a Measure of Responsiveness

Assume Sarah is a CPA who earns $85,000 a year and her favorite entertainment magazine costs her $15 a year.For her,the price elasticity of demand for the magazine is likely to be:

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $2 to $4,the price elasticity of demand equals:

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from point E to point F can be described as:

The more substitutes there are for a product:

First Choice Cracker company needs to increase the price of crackers by 5%,based on a substantial increase in input costs such as flour.The price elasticity of demand for crackers is 0.4.The company can expect the consumption of cereal to:

If the demand for pineapples is unit elastic,the value of the price elasticity of demand for pineapples is:

Clear Window Manufacturer wants to increase the quantity of windows it sells by 10%.If the price elasticity of demand is 5 the manufacturer must:

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Using the initial-value method,the demand for cars is:

The short run price elasticity of demand for gasoline is 0.5,and the long run price elasticity of demand for gasoline is 1.1.Demand for gasoline is in the short run and in the long run.

When the price of milk increases 6%,quantity demanded decreases 4%.The elasticity for milk is:

An Internet company wants to increase the consumption of Internet packages by 15%.The price elasticity of demand for Internet packages is 2.The telephone company should:

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from point A to point B can be described as:

When the price of bricks increases 5%,quantity demanded decreases 15%.The elasticity for bricks is:

When Luna Hair Salon raised its hair cut prices by 10% because of an increase in rent cost,it lost a quarter of its customers.The price elasticity of demand for its hair cut is:

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $6 to $8,the price elasticity of demand equals:

At a price of $4,a gas station.sold 100 gallons of gasoline per week.When the price rose to $4.5,only 80 gallons were sold per week.Using the initial-value method,the price elasticity of demand for gasoline at Greedy Inc.Gas Station is:

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is decreased from $10 to $8,the price elasticity of demand equals:

At a price of $25,a store can sell 28 picture frames a day.If the price falls to $20,the store can sell 35 picture frames a day.Using the initial-value method,the price elasticity of demand is:

The concept of elasticity applies to:

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Therefore,using initial value,a 1% increase in the price of the car will result in a ________ in the quantity demanded of cars.