Question 1

If a demand curve is linear, the price elasticity of demand is constant along it.

Accepted Answer

The price elasticity of demand varies along a linear demand curve; it is not constant. Elasticity depends on the slope of the curve and the price and quantity at each point.

Question 2

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

Accepted Answer

An advance in technology that shifts the supply curve to the right increases supply, which can lower prices. If demand is inelastic, total revenue may decrease despite increased quantity sold.

Question 3

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

Accepted Answer

D

Question 4

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Accepted Answer

A negative cross-price elasticity of demand means that as the price of one good increases, the quantity demanded of the other good decreases. This is a characteristic of complementary goods, which are typically used together.

Question 5

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

Price Elasticity of Demand = % change in quantity demanded / % change in price

Given: When price rises by 10%, quantity demanded falls by 20%.
Thus, % change in quantity demanded = -20%
and % change in price = 10%

Price Elasticity of Demand = (-20%)/10% = -2

Price elasticity of demand is a positive value, so taking the absolute value, we get:

Price Elasticity of Demand = 2

Therefore, the statement is true.

Question 6

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

Accepted Answer

This is the correct definition of price elasticity of demand.

Question 7

The price elasticity of demand is defined as

Accepted Answer

The price elasticity of demand is the percentage change in quantity demanded of a good divided by the percentage change in the price of that good. This measures the responsiveness of consumers to changes in price, and tells us how much the quantity demanded of a good will change when the price changes.

Question 8

The price elasticity of demand measures the

Accepted Answer

The price elasticity of demand measures the magnitude of the response in quantity demanded to a change in price. This means it shows how much the quantity demanded will change in response to a change in price.

Question 9

The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

Accepted Answer

As the firm's production facility reaches maximum capacity, it becomes harder for the firm to increase its output due to limited resources. This means that the firm's supply becomes more inelastic since it cannot easily respond to changes in demand with an increase in supply.

Question 10

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Accepted Answer

Cross-price elasticity of demand is a measure of how the quantity demanded of one good responds to a change in the price of another good. It indicates whether the two goods are substitutes or complements.

Question 11

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Accepted Answer

Luxury items are associated with higher incomes and are often considered to be status symbols. As income increases, consumers may be more likely to purchase luxury items, leading to a large income elasticity of demand (i.e., the percent change in quantity demanded is more than the percent change in income).

Question 12

If the price elasticity of demand within the price range from €1 to €1.25 per kilogram for carrots is 0.79 and for radishes is 1.6, then within that price range

Accepted Answer

A higher price elasticity of demand (PED) value indicates a more responsive demand to a change in price. As the PED value for radishes is higher than that of carrots, we can conclude that demand for radishes is more price elastic than that for carrots. Therefore, option B is the correct choice. The other options do not follow from the given information.

Question 13

The demand for Rice Krispies is less elastic than the demand for cereal in general.

Accepted Answer

The answer of The demand for Rice Krispies is less...

Question 14

In general, demand curves for luxuries tend to be price elastic.

Accepted Answer

Luxuries are often considered non-essential and consumers have more flexibility in their decision to purchase them. This means that as prices increase, consumers are more likely to reduce their demand for these goods, making the demand curve price elastic.

Question 15

If Euro T-Shirt Co. lowers its price from €6 to €5 and finds that students increase their quantity demanded from 400 to 600 T-shirts per month, then the demand for EuroT-shirts within this price range is

Accepted Answer

The decrease in price from €6 to €5 resulted in a 20% decrease in price, and a 50% increase in quantity demanded. This means that the price elasticity of demand is greater than 1, indicating that demand is price elastic within this price range.

Question 16

In general, a steeper supply curve is more likely to be

Accepted Answer

A steeper supply curve indicates that quantity supplied does not change significantly in response to a change in price. This suggests that the supply is price inelastic.

Question 17

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

Accepted Answer

If a small percentage increase in price greatly reduces the quantity demanded, this means that the price elasticity of demand is high, or in other words, the demand is price elastic.

Question 18

If price elasticity of demand for a good is 2.0, this implies that consumers would

Accepted Answer

A price elasticity of 2.0 means that for every 1% decrease in price, quantity demanded increases by 2%. Therefore, a 1% cut in price would lead to a 2% increase in quantity demanded (option C). Option A is incorrect because it implies a 10% decrease in price, which is not specified in the question. Option B is incorrect because it implies a 1% increase in quantity demanded, which is not the case when price elasticity is 2.0. Option D is incorrect because it suggests that consumers are unresponsive to any increase in price, which is not the case with an elasticity of 2.0.

Question 19

In general, a flatter demand curve is more likely to be

Accepted Answer

A flatter demand curve indicates that a small change in price leads to a larger change in quantity demanded, which is characteristic of price elasticity.

Question 20

The price elasticity of demand for a good measures the willingness of

Accepted Answer

The price elasticity of demand measures the responsiveness of consumers to changes in the price of a good. A high price elasticity of demand means that consumers are willing to buy less of the good as the price rises, while a low price elasticity of demand means that consumers are willing to continue buying the good even if the price rises.

Quiz 4: Elasticity and Its Applications