Question 1

Which of the following is likely to have the most price inelastic demand?
A) camcorders
B) insulin
C) apples
D) devices that remove cores from apples

Accepted Answer

Insulin is a necessary medication for people with diabetes and has no substitutes, so its demand is likely to be price inelastic, meaning that changes in its price will have little effect on the quantity demanded. Apples have substitutes and a change in their price will likely result in consumers purchasing other fruits instead. Camcorders have many substitutes in the form of smartphones and digital cameras, making their demand relatively elastic. Devices that remove cores from apples are not a necessity and have alternatives such as knives, so their demand is likely to be elastic as well.

Question 2

Demand is said to be inelastic if
A) buyers respond substantially to changes in the price of the good.
B) demand shifts only slightly when the price of the good changes.
C) the quantity demanded changes only slightly when the price of the good changes.
D) the price of the good responds only slightly to changes in demand.

Accepted Answer

Inelastic demand means that the quantity demanded changes only slightly in response to changes in the price of the good. This is because consumers are not very sensitive or responsive to changes in the price and will continue to buy the good at a relatively consistent rate. Option A is the definition of elastic demand where buyers respond substantially to changes in the price of a good. Option B is referring to the concept of perfectly inelastic demand, where the quantity demanded does not change at all even if the price changes. Option D is not a valid definition of demand elasticity.

Question 3

When the price of bubble gum is $0.50,the quantity demanded is 400 packs per day.When the price falls to $0.40,the quantity demanded increases to 600.Given this information and using the midpoint method,we know that the demand for bubble gum is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.

Accepted Answer

Using the midpoint method, we can calculate the price elasticity of demand as:

Price elasticity of demand = (change in quantity demanded / average quantity demanded) / (change in price / average price)

= [(600 - 400) / ((600 + 400) / 2)] / [(0.40 - 0.50) / ((0.40 + 0.50) / 2)]

= 0.4 / (-0.05)

= -8

Since the absolute value of the price elasticity of demand is greater than 1, we know that the demand for bubble gum is elastic, meaning that a small change in price leads to a relatively large change in quantity demanded.

Question 4

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
A) a 7.5 increase in the price of the good
B) a 13.33 percent increase in the price of the good
C) an increase in the price of the good from $7.50 to $10
D) an increase in the price of the good from $10 to $17.50

Accepted Answer

Using the midpoint method formula: 
Price Elasticity of Demand = [(Q2-Q1) / ((Q2+Q1)/2)] / [(P2-P1) / ((P2+P1)/2)]
0.75 = [(Q2-Q1) / ((Q2+Q1)/2)] / [(P2-P1) / ((P2+P1)/2)]
Assuming a 10% decrease in quantity demanded, we can say Q2 = 0.9Q1
0.75 = [(0.1Q1) / ((1.9Q1)/2)] / [(P2-P1) / ((P2+P1)/2)]
0.75 = [(0.1Q1) / (0.95Q1)] / [(P2-P1) / ((P2+P1)/2)]
0.75 = 0.2105 / [(P2-P1) / ((P2+P1)/2)]
[(P2-P1) / ((P2+P1)/2)] = 0.2105/0.75
[(P2-P1) / ((P2+P1)/2)] = 0.2806
Solving the equation for each option:
A) [(P2-P1) / ((P2+P1)/2)] = 0.075, not consistent with 0.2806.
B) [(P2-P1) / ((P2+P1)/2)] = 0.1333, consistent with 0.2806.
C) [(10-7.5) / ((10+7.5)/2)] = 0.2857, not consistent with 0.2806.
D) [(17.5-10) / ((17.5+10)/2)] = 0.5278, not consistent with 0.2806.
Therefore, option B is the best choice as a 13.33% increase in price is consistent with a 10% decrease in quantity demanded, given the computed price elasticity of demand.

Question 5

For a good that is a necessity,demand
A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Accepted Answer

Necessities are goods that consumers must have regardless of changes in price. Therefore, the demand tends to be inelastic, meaning that changes in price have little effect on the quantity demanded by consumers.

Question 6

Suppose the price of potato chips decreases from $1.45 to $1.25 and,as a result,the quantity of potato chips demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for potato chips in the given price range is
A) 2.00.
B) 1.55.
C) 1.00.
D) 0.64.

Accepted Answer

The midpoint method formula for price elasticity of demand is [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(2200 - 2000) / (2200 + 2000) / 2] / [(1.25 - 1.45) / (1.25 + 1.45) / 2] = 0.64.

Question 7

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
A) inelastic.
B) unit elastic.
C) elastic.
D) highly responsive to changes in income.

Accepted Answer

A person who takes a prescription drug to control high cholesterol has a demand that is likely to be inelastic. This is because the drug is necessary for maintaining their health, and they may not have many substitutes or alternatives available to them. As a result, they are likely to be willing to pay a high price for the drug, making the demand relatively insensitive to changes in price.

Question 8

Demand is said to be inelastic if the
A) quantity demanded changes proportionately more than price.
B) price changes proportionately more than income.
C) quantity demanded changes proportionately less than price.
D) quantity demanded changes proportionately the same as price.

Accepted Answer

Inelastic demand means that the change in quantity demanded is proportionately less than the change in price. This can happen when there are no close substitutes for the good or when the good is a necessity. Buyers will continue to purchase the good even if there is a small increase in price, resulting in a smaller change in quantity demanded.

Question 9

Which of the following is likely to have the most price inelastic demand?
A) athletic shoes
B) running shoes
C) Nike running shoes
D) Nike Shox running shoes

Accepted Answer

The answer of Which of the following is likely to...

Question 10

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then the
A) demand for the good is said to be elastic.
B) demand for the good is said to be inelastic.
C) law of demand does not apply to the good.
D) demand curve for the good shifts only slightly in response to a change in price.

Accepted Answer

When the quantity demanded of a good responds only slightly to a change in its price, it means that the demand for the good is not very sensitive to changes in price. This type of demand is known as inelastic demand. Inelastic demand occurs when there are few substitutes for the good, and/or when the good is a necessity that consumers have to buy regardless of its price. In this case, the demand curve for the good is relatively steep, indicating that a change in price will lead to a relatively small change in the quantity demanded of the good.

Question 11

Other things equal,the demand for a good tends to be more inelastic,the
A) fewer the available substitutes.
B) longer the time period considered.
C) more the good is considered a luxury good.
D) more narrowly defined is the market for the good.

Accepted Answer

When there are fewer available substitutes for a good, consumers have fewer options to switch to if the price of the good increases. As a result, they are more likely to continue buying the good even if the price increases, making the demand for the good more inelastic.

Question 12

There are very few,if any,good substitutes for automotive tires.Therefore,the demand for automotive tires would tend to be
A) elastic.
B) unit elastic.
C) inelastic.
D) highly responsive to changes in income as well as changes in prices.

Accepted Answer

The demand for automotive tires is likely to be inelastic because there are few substitutes for them. Inelastic demand means that changes in the price of tires will have relatively little impact on the quantity demanded because consumers are not able to easily switch to other products.

Question 13

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is
A) inelastic and equal to 0.67.
B) elastic and equal to 0.67.
C) inelastic and equal to 1.50.
D) elastic and equal to 1.50.

Accepted Answer

The answer of Suppose that quantity demand rises by 10%...

Question 14

Which of the following is likely to have the most price inelastic demand?
A) lattés
B) filet mignon
C) Grey Goose® vodka
D) milk

Accepted Answer

The answer of Which of the following is likely to...

Question 15

If demand is price inelastic,then
A) buyers do not respond much to a change in price.
B) buyers respond substantially to a change in price, but the response is very slow.
C) buyers do not alter their quantities demanded much in response to advertising, fads, or general changes in tastes.
D) the demand curve is very flat.

Accepted Answer

Price inelastic demand means that the quantity demanded does not change much in response to a change in price. Therefore, buyers do not respond much to a change in price, and the demand curve is steep.

Question 16

Demand is inelastic if the price elasticity of demand is
A) less than 1.
B) equal to 1.
C) greater than 1.
D) equal to 0.

Accepted Answer

If the price elasticity of demand is less than 1, it means that the percentage change in quantity demanded is less than the percentage change in price. This indicates that the demand is relatively unresponsive to changes in price and therefore inelastic.

Question 17

There are very few,if any,good substitutes for motor oil.Therefore,the
A) demand for motor oil would tend to be inelastic.
B) demand for motor oil would tend to be elastic.
C) demand for motor oil would tend to respond strongly to changes in prices of other goods.
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Accepted Answer

When a product has few or no substitutes, its demand tends to be inelastic because consumers have few options and are willing to pay a higher price for it. In this case, since there are very few good substitutes for motor oil, the demand for it would tend to be inelastic.

Question 18

A good will have a more inelastic demand,the
A) greater the availability of close substitutes.
B) broader the definition of the market.
C) longer the period of time.
D) more it is regarded as a luxury.

Accepted Answer

The answer of A good will have a more inelastic...

Question 19

The midpoint method is used to compute elasticity because it
A) automatically computes a positive number instead of a negative number.
B) results in an elasticity that is the same as the slope of the demand curve.
C) gives the same answer regardless of the direction of change.
D) automatically rounds quantities to the nearest whole unit.

Accepted Answer

The midpoint method calculates elasticity by taking the average of two points and dividing the percentage change in quantity demanded by the percentage change in price, regardless of whether the price increases or decreases. This results in the same numerical value of elasticity regardless of the direction of change.

Question 20

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 2.Which of the following events is consistent with a 0.1 percent increase in the price of the good?
A) The quantity of the good demanded decreases from 250 to 150.
B) The quantity of the good demanded decreases from 200 to 100.
C) The quantity of the good demanded decreases by 0.05 percent.
D) The quantity of the good demanded decreases by 0.2 percent.

Accepted Answer

Using the midpoint formula, we can calculate the price change percentage as:

(price change percentage) = ((new price - old price) / ((new price + old price)/2)) x 100%

We are given that the price change is 0.1%. So we can write:

0.1% = ((new price - old price) / ((new price + old price)/2)) x 100%

Simplifying this, we get:

(new price - old price) / ((new price + old price)/2) = 0.001

Multiplying both sides by ((new price + old price)/2), we get:

new price - old price = 0.001 x ((new price + old price)/2)

Simplifying this, we get:

new price - old price = 0.0005 x (new price + old price)

Now, we can use the price elasticity of demand formula to calculate the percentage change in quantity demanded:

(price elasticity of demand) = (percentage change in quantity demanded) / (percentage change in price)

2 = (percentage change in quantity demanded) / 0.1

Simplifying this, we get:

percentage change in quantity demanded = 0.1 x 2 = 0.2

So a 0.1% increase in price should lead to a 0.2% decrease in quantity demanded. Among the given options, only option D has a percentage decrease of 0.2%. So the answer is D.

Quiz 5: Elasticity and Its Application

Which of the following is likely to have the most price inelastic demand?

Demand is said to be inelastic if

When the price of bubble gum is $0.50,the quantity demanded is 400 packs per day.When the price falls to $0.40,the quantity demanded increases to 600.Given this information and using the midpoint method,we know that the demand for bubble gum is

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

For a good that is a necessity,demand

Suppose the price of potato chips decreases from $1.45 to $1.25 and,as a result,the quantity of potato chips demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for potato chips in the given price range is

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Demand is said to be inelastic if the

Which of the following is likely to have the most price inelastic demand?

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then the

Other things equal,the demand for a good tends to be more inelastic,the

There are very few,if any,good substitutes for automotive tires.Therefore,the demand for automotive tires would tend to be

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is

Which of the following is likely to have the most price inelastic demand?

If demand is price inelastic,then

Demand is inelastic if the price elasticity of demand is

There are very few,if any,good substitutes for motor oil.Therefore,the

A good will have a more inelastic demand,the

The midpoint method is used to compute elasticity because it

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 2.Which of the following events is consistent with a 0.1 percent increase in the price of the good?