Question 1

Which of the following statements about the price elasticity of demand is true?
A) Slope and elasticity measure the same things.
B) Price elasticity of demand varies depending on how price and quantity are measured.
C) It is important to know whether the price elasticity of demand is a positive or negative number.
D) The slope of a demand curve does not tell us the price elasticity of demand.
E) Price elasticity is the same everywhere along a demand curve of any shape.

Accepted Answer

The slope of a demand curve tells us the magnitude (not the direction) of the price elasticity of demand, but not the actual elasticity value. The actual elasticity value depends on how responsive consumers are to changes in price, which is impacted by various factors such as availability of substitutes, income levels, and time horizon. Therefore, the statement that "slope and elasticity measure the same things" is incorrect. Option B can also be considered partly true, as the elasticity value can vary depending on the units of measurement used for price and quantity (e.g. dollars vs cents, kilograms vs grams).

Question 2

If a 1 percent decrease in the price of steak results in a 2 percent increase in the quantity demanded for steak, then the price elasticity of the demand for steak is
A) 2 cents.
B) 2 pounds of steak.
C) 2 percent.
D) $2.
E) 2.

Accepted Answer

The price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price. The formula for price elasticity of demand is:
Price elasticity = percentage change in quantity demanded / percentage change in price
Given that a 1% decrease in price leads to a 2% increase in quantity demanded:
Percentage change in quantity demanded = 2%
Percentage change in price = -1%
Substituting these values in the formula:
Price elasticity = 2% / (-1%) = -2
Note that price elasticity is usually expressed as an absolute value, so the answer is 2.

Question 3

If a 1 percent change in price results in a 5 percent change in quantity demanded, then
A) the price elasticity of demand is 5.
B) the slope of the demand curve is 1/5.
C) the slope of the demand curve is 5.
D) the price elasticity of demand is 1/5.
E) there is not enough information to calculate slope or elasticity.

Accepted Answer

The answer of If a 1 percent change in price...

Question 4

Suppose that, as the price of product H falls from $5 to $4, the quantity of H demanded increases from 2,000 to 6,000 units. In this case, what is the elasticity of demand, using the midpoint formula?
A) .9
B) .4
C) 4.5
D) 1.6
E) 3.0

Accepted Answer

Using the midpoint formula, the price elasticity of demand can be calculated as:

Elasticity = ((Q2 - Q1) / ((Q2 + Q1) / 2)) / ((P2 - P1) / ((P2 + P1) / 2))

Plugging in the values, we get:

Elasticity = ((6000 - 2000) / ((6000 + 2000) / 2)) / (($4 - $5) / (($4 + $5) / 2))
Elasticity = 4.5

Therefore, the elasticity of demand is 4.5. The closest option is C) 4.5.

Question 5

The measurement for the price elasticity of demand is
A) unit free.
B) in percentage terms.
C) in dollar terms.
D) in terms of the quantity measurement of the good involved.
E) in terms of the currency used to purchase the good.

Accepted Answer

The price elasticity of demand is a unit-free measure, meaning that it does not depend on the specific units used to measure the price or quantity of the good. This allows for easier comparison across different goods and markets.

Question 6

Suppose that the price of product G increases from $10 to $20 and, in response, quantity demanded declines from 100 to 80. Using the midpoint formula, what is the elasticity of demand?
A) .5
B) 3
C) .67
D) .33
E) 2

Accepted Answer

The answer of Suppose that the price of product G...

Question 7

Suppose a $1 change in the price of a good results in the quantity demanded changing by .2 percent. Then you know
A) the price elasticity of demand is 1/5.
B) nothing about slope or price elasticity of demand based on this information.
C) the price elasticity of demand is 5.
D) the slope of the demand curve is 5.
E) the slope of the demand curve is 1/5.

Accepted Answer

The answer of Suppose a $1 change in the price...

Question 8

If the price elasticity of demand is equal to 4, a 1 percent increase in the price will cause quantity demanded to increase from 100 to 104 units.

Accepted Answer

If the price elasticity of demand is 4, a 1 percent increase in the price will cause quantity demanded to decrease by 4 percent, which would result in a decrease from 100 to 96 units, not an increase to 104 units.

Question 9

The price elasticity of demand is expressed in dollar changes in price and quantity demanded.

Accepted Answer

The price elasticity of demand is expressed in percentage changes in price and quantity demanded.

Question 10

The price elasticity of demand is a more precise measure of the slope of a demand curve.

Accepted Answer

The price elasticity of demand is a measure of how responsive quantity demanded is to changes in price, while the slope of a demand curve only shows the relationship between price and quantity demanded at one specific point. The two measures are related, but they are not interchangeable.

Question 11

If a $1 increase in price changes quantity demanded by 4 units, the price elasticity of demand
A) must equal .25 percent.
B) must equal 4 percent.
C) must equal 1/4.
D) cannot be calculated with this information.
E) must equal 4.

Accepted Answer

The answer of If a $1 increase in price changes...

Question 12

Which of the following correctly represents the midpoint formula?
A) 
B) 
C) 
D) 
E)

Accepted Answer

The midpoint formula is given by:
Midpoint = ((x1 + x2)/2 , (y1 + y2)/2)
The hexadecimal values in the answer options represent the values of x1, x2, y1, and y2. By looking at the options carefully, we can see that option C represents the correct values for x1, x2, y1, and y2 to give the midpoint formula.

Question 13

The price elasticity of demand is measured by the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

This is the correct formula for calculating price elasticity of demand.

Question 14

The price elasticity of demand measures the change in quantity demanded given a dollar change in price.

Accepted Answer

The price elasticity of demand measures the percentage change in quantity demanded given a one percent change in price, not a dollar change.

Question 15

Consider two demand curves with different slopes. It is possible to predict ranges on each demand curve where the price elasticities of demand will be different.

Accepted Answer

Price elasticity of demand is determined by the slope of the demand curve. Therefore, if two demand curves have different slopes, it is possible to predict ranges in each curve where price elasticities of demand will be different.

Question 16

The measurement of the price elasticity of demand is unit free.

Accepted Answer

The price elasticity of demand is a unit-free measure because it is calculated as a ratio of percentage changes. It does not depend on the units of measurement used for price and quantity.

Question 17

The price elasticity of demand is negative because the demand curve slopes downward.

Accepted Answer

The price elasticity of demand is always negative because as the price of a good or service increases, the quantity demanded decreases. The demand curve slopes downward, indicating the inverse relationship between price and quantity demanded.

Question 18

The price elasticity of demand is the same as the slope of the demand curve.

Accepted Answer

The price elasticity of demand is a measure of the responsiveness of the quantity demanded to a change in price, while the slope of the demand curve shows the relationship between price and quantity demanded. The two concepts are related, but not the same.

Question 19

If 12 candy bars are demanded at $.30 each and 4 candy bars are demanded at $.50 each, what is the price elasticity of demand using the midpoint formula?
A) 2
B) .5
C) 7.5
D) .4
E) 1.67

Accepted Answer

The answer of If 12 candy bars are demanded at...

Question 20

The price elasticity of demand measures how much price changes given a change in demand.

Accepted Answer

The price elasticity of demand measures how much quantity demanded changes given a change in price.

Quiz 4: Subtleties of the Supply and Demand Model: Price Floors, Price Ceilings, and Elasticity

Which of the following statements about the price elasticity of demand is true?

If a 1 percent decrease in the price of steak results in a 2 percent increase in the quantity demanded for steak, then the price elasticity of the demand for steak is

If a 1 percent change in price results in a 5 percent change in quantity demanded, then

Suppose that, as the price of product H falls from $5 to $4, the quantity of H demanded increases from 2,000 to 6,000 units. In this case, what is the elasticity of demand, using the midpoint formula?

The measurement for the price elasticity of demand is

Suppose that the price of product G increases from $10 to $20 and, in response, quantity demanded declines from 100 to 80. Using the midpoint formula, what is the elasticity of demand?

Suppose a $1 change in the price of a good results in the quantity demanded changing by .2 percent. Then you know