Question 1

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 2

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

Accepted Answer

The price elasticity of demand is unit free because it is a ratio of percentage changes, which means the units cancel out.

Question 3

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 the slope measures the change in quantity demanded for a change in price, the price elasticity of demand measures the responsiveness of quantity demanded to a change in price. The two concepts are related, but not equivalent.

Question 4

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 the quantity demanded changes given a change in price, not the other way around.

Question 5

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 6

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 7

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

Accepted Answer

The slope of a demand curve tells us the direction (positive or negative) and the steepness (elastic or inelastic) of demand, but it does not give us a precise measurement of price elasticity of demand. Price elasticity of demand is calculated by comparing the percentage change in quantity demanded to the percentage change in price, and the resulting number can be positive or negative. Therefore, statement D is the only true statement in this question.

Question 8

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 9

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

This is because the price elasticity of demand is affected by the slope of the demand curve. Generally, the flatter the demand curve (i.e. the more horizontal), the more price sensitive consumers are, and the higher the price elasticity of demand. On the other hand, the steeper the demand curve (i.e. the more vertical), the less price sensitive consumers are, and the lower the price elasticity of demand. Therefore, if two demand curves have different slopes, it is possible to predict that they will have different ranges of price elasticities of demand.

Question 10

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 by dividing the percentage change in quantity demanded by the percentage change in price. Using the information given, we can calculate the price elasticity of demand as:
Elasticity = (2%)/(1%) = 2
Therefore, the answer is E, 2.

Question 11

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 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 percentage changes in price and quantity demanded. The formula accounts for the direction of the price change by using the average of the initial and final prices and quantities, which ensures that the elasticity value will be the same regardless of whether the price increased or decreased. Therefore, the statement is true.

Question 13

The measurement for the price elasticity of demand is

Accepted Answer

The price elasticity of demand is unit free, meaning it is not measured in any particular currency or quantity measurement. It is simply a ratio of the percentage change in quantity demanded to the percentage change in price.

Question 14

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 15

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 does not use dollar changes in price or quantity demanded.

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 equal to 4, a 1 percent increase in the price will cause quantity demanded to decrease by 4 percent, not increase. Therefore, the statement is false.

Question 17

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 18

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. This is reflected in the negative slope of the demand curve. As a result, the price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price, is also negative.

Question 19

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 = (ΔQ/[(Q1 + Q2)/2]) / (ΔP/[(P1 + P2)/2])

Using the given values:

ΔQ = 150 - 100 = 50
Q1 = 100 and Q2 = 150
ΔP = 8 - 10 = -2
P1 = 10 and P2 = 8

Price Elasticity of Demand = ((50/[(100 + 150)/2]) / (-2/[(10 + 8)/2])) = 1.8

Therefore, the statement is true.

Question 20

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.

Quiz 4: Subtleties of the Supply and Demand Model