Question 1

If the quantity of cookies purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the absolute value of the price elasticity of demand for cookies is

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the quantity of cookies decreases by 30% and the price of oranges increases by 15%. The elasticity is |-30% / 15%| = 2.0.

Question 2

If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent, and the quantity sold declines by 8 percent as a result, the price elasticity of demand for cigarettes is equal to

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is -8% / 20% = -0.4.

Question 3

The demand for salt is

Accepted Answer

Salt is inelastic because it has few substitutes and represents a small percentage of a consumer's budget, making changes in price have little effect on demand.

Question 4

The price of soccer balls increases from $35 to $40, and as a result, the quantity demanded decreases from 250 to 200. Over this price range,

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the percentage change in quantity demanded is -20% (from 250 to 200), and the percentage change in price is approximately 14.29% (from $35 to $40). The elasticity is approximately -1.4, which is greater than 1 in absolute value, indicating elastic demand.

Question 5

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Accepted Answer

The price elasticity of demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). The percentage change in quantity demanded is ((450 - 350) / 350) * 100 = 28.57%, and the percentage change in price is ((1.80 - 2.20) / 2.20) * 100 = -18.18%. The absolute value of the elasticity is 28.57% / 18.18% = 1.25.

Question 6

The demand curve for a good is very unlikely to be perfectly vertical because

Accepted Answer

A perfectly vertical demand curve implies that quantity demanded does not change with price changes. However, scarcity and limited income (A) restrict consumers' ability to purchase goods as prices rise, and high prices incentivize the creation of substitutes (B), both of which prevent the demand curve from being perfectly vertical.

Question 7

When a good is more narrowly defined (for example, airline travel versus Delta Airlines travel),

Accepted Answer

When a good is more narrowly defined, such as Delta Airlines travel, there are more specific alternatives available (e.g., other airlines), making demand more elastic.

Question 8

If consumers would be willing to purchase the same quantity of a good no matter what its price was, the demand curve would

Accepted Answer

If consumers are willing to purchase the same quantity regardless of price, the demand is perfectly inelastic, represented by a vertical demand curve.

Question 9

When the price of running shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

Accepted Answer

The answer of When the price of running shoes goes...

Question 10

A successful advertising campaign would likely

Accepted Answer

A successful advertising campaign that stresses the uniqueness of a product can make consumers perceive it as more distinct and less substitutable, thereby reducing the price elasticity of demand.

Question 11

A good that takes up a very large percentage of the consumer's budget will tend to have

Accepted Answer

Goods that take up a large percentage of a consumer's budget tend to have elastic demand because consumers are more sensitive to price changes when the good represents a significant portion of their spending.

Question 12

If the price elasticity of demand for opera tickets is estimated to be 4.5, then a 10 percent increase in opera ticket prices would be expected to cause a

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. With an elasticity of 4.5, a 10% increase in price would lead to a 45% decrease in quantity demanded (4.5 * 10% = 45%).

Question 13

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as

Accepted Answer

Demand is classified as relatively elastic when the percentage change in quantity demanded is greater than the percentage change in price. Here, a 20% increase in quantity demanded in response to a 10% decrease in price indicates elasticity greater than 1, which is relatively elastic.

Question 14

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is −.25, by how much would you have to raise the price of water?

Accepted Answer

The price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. In this case, we want to reduce consumption by 10%, so we need to raise the price by enough to cause a 10% decrease in demand. The price elasticity of demand is -0.25, which means that a 1% increase in price will lead to a 0.25% decrease in demand. Therefore, to reduce demand by 10%, we need to raise the price by 10% / 0.25% = 40%.

Question 15

A local Krispy Kreme doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was

Accepted Answer

The price elasticity of demand is elastic because the percentage change in quantity demanded (33.33%) is greater than the percentage change in price (12.5%).

Question 16

If demand price elasticity measures 2, this implies that consumers would

Accepted Answer

A price elasticity of 2 means that for every 1 percent decrease in price, the quantity demanded increases by 2 percent.

Question 17

As people have more time to adjust to a price change,

Accepted Answer

As time passes, consumers and producers have more opportunities to find alternatives and adjust their behaviors, making both demand and supply more elastic.

Question 18

If a demand curve for a good were completely vertical, it would be considered

Accepted Answer

A completely vertical demand curve indicates that the quantity demanded does not change regardless of price changes, which is the definition of perfectly inelastic demand.

Question 19

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is 25% / 10% = 2.5.

Question 20

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

Accepted Answer

The demand is elastic because the percentage change in quantity demanded (15%) is greater than the percentage change in price (10%).

Quiz 7: Consumer Choice and Elasticity