Question 1

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

Accepted Answer

The formula for price elasticity of demand results in a unit-free measure as it involves dividing the percentage change in quantity demanded by the percentage change in price. Therefore, the unit of price and quantity cancel out, making it unit-free.

Question 2

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?

Accepted Answer

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

Question 3

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 4

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

Accepted Answer

Using the midpoint formula, we have:

Elasticity of demand = [(change in quantity demanded / average quantity demanded) / (change in price / average price)]

= [(6000-2000) / ((6000+2000)/2)] / [(4-5) / ((4+5)/2)]

= (4000/4000) / (-1/4.5) = 4.5

Question 5

Suppose that the price of product B increases from $10 to $15 and, in response, quantity demanded declines from 100 to 80. Using the midpoint formula, what is the elasticity of demand?

Accepted Answer

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

Question 6

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

Accepted Answer

The price elasticity of demand is not the same as the slope of the demand curve. While both concepts relate to the relationship between price and quantity demanded, the slope of the demand curve only measures the change in quantity demanded resulting from a unit change in price, while price elasticity of demand shows the percentage change in quantity demanded resulting from a percentage change in price. Additionally, the slope of the demand curve can be different at different points along the curve, while price elasticity is constant over a given range of prices.

Question 7

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

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, we know that a 1 percent decrease in price results in a 2 percent increase in quantity demanded, so the price elasticity of demand is (2%/1%) = 2.

Question 8

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

Accepted Answer

The slope of a demand curve tells us the rate at which quantity changes in response to a change in price, but it does not tell us the price elasticity of demand. The price elasticity of demand is determined by the percentage change in quantity demanded relative to the percentage change in price, and can be calculated using the midpoint formula.

Question 9

Suppose that, as the price of wheat falls from $10 to $8, the quantity demanded of wheat increases from 100 bushels to 150 bushels. Using the midpoint formula, the price elasticity of demand for wheat is 1.8.

Accepted Answer

The midpoint formula for calculating price elasticity of demand is:

Price Elasticity of Demand = [(Q2 - Q1)/((Q2 + Q1)/2)] / [(P2 - P1)/((P2 + P1)/2)]

Using the given values:

Price Elasticity of Demand = [(150-100)/((150+100)/2)] / [($8-$10)/(($8+$10)/2)]

Price Elasticity of Demand = (50/125) / (-2/9)

Price Elasticity of Demand = 1.8

Therefore, the statement is true.

Question 10

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

Accepted Answer

The price elasticity of demand is expressed as a percentage change in quantity demanded divided by a percentage change in price. It is not expressed in dollar changes.

Question 11

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 12

The midpoint formula for calculating price elasticity of demand gives the same answer, regardless of the direction of the price change.

Accepted Answer

The midpoint formula for calculating price elasticity of demand is based on the average of the initial and final prices and quantities, and therefore gives the same answer regardless of the direction of the price change.

Question 13

If a 1 percent change in price results in a 4 percent change in quantity demanded, then

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which in this case is 4%/1% = 4.

Question 14

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

Accepted Answer

The law of demand states that as the price of a good or service increases, the quantity demanded decreases, and as the price decreases, the quantity demanded increases. This causes the demand curve to slope downward, and since price and quantity demanded have an inverse relationship, the price elasticity of demand is negative.

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 varies depending on the slope of the demand curve. Flatter demand curves have higher price elasticity in a wider price range, while steeper demand curves have lower price elasticity in a narrower price range. Therefore, it is possible to predict different ranges of price elasticity on different demand curves with different slopes.

Question 16

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% increase in price will cause a 4% decrease in quantity demanded (since the demand is elastic). Therefore, quantity demanded would go from 100 to 96 units, not 104.

Question 17

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.

Question 18

Suppose a 1 percent in the price of a good results in the quantity demanded changing by 0.2 percent. Then you know

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which in this case is 0.2/1 = 0.2.

Question 19

If a $1 increase in price changes quantity demanded by 4 units, the price elasticity of demand

Accepted Answer

The price elasticity of demand requires information about the original price and quantity, not just the change in quantity for a given price change. Without this context, the elasticity cannot be accurately calculated.

Question 20

The measurement for the price elasticity of demand is

Accepted Answer

Price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price. Since the percentage change in price and quantity demanded are both unit-free, the measurement for price elasticity of demand is also unit-free.

Quiz 4: Subtleties of the Supply and Demand Model