Question 1

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from Point A to Point B can be described as
A) elastic.
B) inelastic.
C) unit elastic.
D) zero.

Accepted Answer

The initial-value method calculates elasticity using the starting point's price and quantity. If the percentage change in quantity demanded is greater than the percentage change in price, the demand is elastic.

Question 2

The concept of elasticity applies to
A) supply only.
B) demand only.
C) neither supply nor demand.
D) both supply and demand.

Accepted Answer

The concept of elasticity applies to both supply and demand. Elasticity is a measure of the responsiveness of quantity demanded or quantity supplied to a change in price or other relevant factors. Therefore, both supply elasticity and demand elasticity are important concepts in explaining how changes in price or other factors affect the behavior of buyers and sellers in a market.

Question 3

If the demand for pineapples is unit elastic,the value of the price elasticity of demand for pineapples is
A) 20..0.
B) 10.0.
C) 2.0.
D) 1.0.

Accepted Answer

If the demand for pineapples is unit elastic, it means that the percentage change in quantity demanded is equal to the percentage change in price. This can be represented by a price elasticity of demand of 1.0. Therefore, the correct choice is D. Choices A, B, and C are incorrect as they represent price elasticities greater or less than 1, indicating demand is either elastic or inelastic.

Question 4

Clear Window Manufacturer wants to increase the quantity of windows it sells by 10%.If the price elasticity of demand is 5,the manufacturer must
A) increase price by 1.5%.
B) decrease price by 2.0%.
C) decrease price by 1.5%.
D) increase price by 2.0%.

Accepted Answer

The price elasticity of demand formula is: % change in quantity demanded = price elasticity of demand * % change in price. To achieve a 10% increase in quantity with an elasticity of 5, the price must decrease by 2% (10% / 5 = 2%).

Question 5

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Therefore,using initial value,a 1% increase in the price of the car will result in a ________ in the quantity demanded of cars.
A) 1.67% decrease
B) 1.25% decrease
C) 0.8% decrease
D) 0.8% increase

Accepted Answer

To calculate the percentage change in quantity demanded, use the following formula:

% Change in Quantity Demanded = ((New Quantity Demanded - Original Quantity Demanded) / Original Quantity Demanded) * 100%

Using the given information:

Original Quantity Demanded = 10,000
New Quantity Demanded = 8,000

% Change in Quantity Demanded = ((8,000 - 10,000) / 10,000) * 100% = -20%

This means that a 1% increase in the price of the car will result in a 20% decrease in the quantity demanded of cars.

To find the specific percentage for a 1% increase:

20% / 100 = 0.2

0.2 x 1 = 0.2

Thus, a 1% increase in price will result in a 0.2% decrease in quantity demanded.

Therefore, the answer is B, a 1.25% decrease is not a choice.

Question 6

The more substitutes there are for a product,
A) the less price elastic the demand for the product is.
B) the more price elastic the demand for the product is.
C) the greater the income elasticity for the product.
D) the smaller the income elasticity for the product.

Accepted Answer

When a product has many substitutes, consumers have more options to switch to if the price of the product increases. This means that the demand for the product is more sensitive to changes in price, making it more price elastic. On the other hand, income elasticity is not directly related to the availability of substitutes, so choices C and D can be ruled out. Choice A is incorrect because when a product has many substitutes, the demand is more price elastic rather than less.

Question 7

When the price of milk increases 6%,quantity demanded decreases 4%.The price elasticity of demand for milk is
A) perfectly elastic.
B) elastic.
C) inelastic.
D) unit elastic.

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 -4%/6% = -0.67 (negative sign indicates inverse relationship). Since the absolute value is less than 1, the demand is inelastic.

Question 8

An Internet company wants to increase the consumption of Internet packages by 15%.The price elasticity of demand for Internet packages is 2.The telephone company should
A) lower the price of Internet packages by 30.0%.
B) lower the price of Internet packages by 7.5%.
C) lower the price of Internet packages by 3.0%.
D) raise the price of Internet packages by 0.1%.

Accepted Answer

Since the price elasticity of demand is 2, a 1% decrease in price will result in a 2% increase in demand. The company wants to increase the consumption of Internet packages by 15%, so we need to decrease the price accordingly.

Let x be the percentage decrease in price, then:

2x = 15
x = 7.5

Therefore, the company should lower the price of Internet packages by 7.5%.

Question 9

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Using the initial-value method,the demand for cars is
A) elastic.
B) inelastic.
C) unit elastic.
D) It is not possible to say based on the data given.

Accepted Answer

The demand for cars is considered elastic because the percentage change in quantity demanded is greater than the percentage change in price. When the price increases by 16% (from $25,000 to $29,000), the quantity demanded decreases by 20% (from 10,000 to 8,000 cars), indicating a relatively high sensitivity of quantity demanded to price changes, which defines elastic demand.

Question 10

First Choice Cracker company needs to increase the price of crackers by 5%,based on a substantial increase in input costs such as flour.The price elasticity of demand for crackers is 0.4.The company can expect the consumption of cereal to
A) decrease by 1.5%.
B) increase by 1.5%.
C) decrease by 2.0%.
D) increase by 2.0%.

Accepted Answer

The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. In this case, the company is increasing the price by 5%, so we can expect the quantity demanded to decrease. The formula for the percentage change in quantity demanded is (-0.4) times the percentage change in price (5%), which equals -2%. This means that we can expect the consumption of crackers to decrease by 2%. Therefore, the best choice is C.

Question 11

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $2 to $4,the price elasticity of demand equals
A) 0.2.
B) 1.0.
C) 2.0.
D) 5.0.

Accepted Answer

The answer of 
-Refer to Figure 5.1.Using the initial-value method,if...

Question 12

When the price of bricks increases 5%,quantity demanded decreases 15%.The price elasticity of demand for bricks is
A) perfectly inelastic.
B) elastic.
C) inelastic.
D) unit elastic.

Accepted Answer

To calculate the price elasticity of demand, we use the formula:

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

Here, we know that when the price of bricks increases by 5%, the quantity demanded decreases by 15%.

So, we can plug these values into the formula:

Price elasticity of demand = (-15%) / (5%) = -3

Since the elasticity is greater than 1, this means the demand for bricks is elastic. In other words, a small change in price leads to a relatively large change in quantity demanded.

Question 13

The short run price elasticity of demand for gasoline is 0.5,and the long run price elasticity of demand for gasoline is 1.1.Demand for gasoline is ________ in the short run and ________ in the long run.
A) elastic; inelastic
B) inelastic; elastic
C) elastic; unit elastic
D) inelastic; unit inelastic

Accepted Answer

A price elasticity of demand less than 1 indicates inelasticity, while a price elasticity of demand greater than 1 indicates elasticity. Therefore, with a short run price elasticity of demand for gasoline of 0.5, demand is inelastic in the short run. Similarly, with a long run price elasticity of demand for gasoline of 1.1, demand is more elastic in the long run. Choice B is the only option that correctly identifies the change in elasticity from inelastic in the short run to elastic in the long run.

Question 14

At a price of $25,a store can sell 28 picture frames a day.If the price falls to $20,the store can sell 35 picture frames a day.Using the initial-value method,the price elasticity of demand is
A) 0.8.
B) 1.25.
C) 1.9.
D) 2.5.

Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% change in quantity demanded) / (% change in price). From the given data, the change in quantity demanded is 35 - 28 = 7 frames, and the change in price is $20 - $25 = -$5. The average quantity is (35 + 28) / 2 = 31.5, and the average price is ($25 + $20) / 2 = $22.5. Thus, % change in quantity demanded = (7 / 31.5) * 100, and % change in price = (-5 / 22.5) * 100. PED = [(7 / 31.5) / (-5 / 22.5)] = 1.25.

Question 15

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is decreased from $10 to $8,the price elasticity of demand equals
A) 1.0.
B) 1.5.
C) 2.0.
D) 5.0.

Accepted Answer

The answer of 
-Refer to Figure 5.1.Using the initial-value method,if...

Question 16

Assume Sarah is a CPA who earns $85,000 a year and her favorite entertainment magazine costs her $15 a year.For her,the price elasticity of demand for the magazine is likely to be
A) elastic.
B) inelastic.
C) perfectly elastic.
D) none of the above

Accepted Answer

Sarah's income is relatively high compared to the cost of the magazine, so the percentage change in quantity demanded is likely to be less than the percentage change in the price of the magazine. Therefore, the price elasticity of demand for the magazine is likely to be inelastic.

Question 17

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from Point E to Point F can be described as
A) elastic.
B) inelastic.
C) unit elastic.
D) zero.

Accepted Answer

The initial-value method for calculating price elasticity of demand involves comparing the percentage change in quantity demanded to the percentage change in price from the initial point. If the absolute value of this elasticity is less than 1, the demand is considered inelastic, meaning that the percentage change in quantity demanded is less than the percentage change in price. This is the case when moving from Point E to Point F, indicating that demand is inelastic.

Question 18

When Luna Hair Salon raised its hair cut prices by 10% because of an increase in rent cost,it lost a quarter of its customers.The price elasticity of demand for its hair cut is
A) 0.25.
B) 0.4.
C) 2.5.
D) 4.0.

Accepted Answer

The formula for price elasticity of demand is

% change in quantity demanded / % change in price

The price of haircuts increased by 10%, and as a result, Luna Hair Salon lost a quarter (25%) of its customers.

% change in quantity demanded = -25% 
% change in price = 10%

Therefore, the price elasticity of demand would be:

-25% / 10% = -2.5

The negative sign indicates an inverse relationship between price and quantity demanded. To get a positive number, we can drop the negative sign and take the absolute value.

So, the price elasticity of demand for Luna Hair Salon's haircuts is 2.5.

Question 19

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $6 to $8,the price elasticity of demand equals
A) 0.7.
B) 1.0.
C) 2.0.
D) 5.0.

Accepted Answer

The price elasticity of demand using the initial-value method is calculated as the percentage change in quantity demanded divided by the percentage change in price. If the price increases from $6 to $8, the percentage change in price is (8-6)/6 = 1/3 or approximately 33.33%. Assuming the quantity demanded changes accordingly, the elasticity can be calculated to be 1.0, indicating unitary elasticity.

Question 20

At a price of $4,a gas station sold 100 gallons of gasoline per week.When the price rose to $4.5,only 80 gallons were sold per week.Using the initial-value method,the price elasticity of demand for gasoline at Greedy Inc.Gas Station is
A) 0.16.
B) 0.2.
C) 1.6.
D) 2.0.

Accepted Answer

The answer of At a price of $4,a gas station...

Quiz 5: Elasticity: a Measure of Responsiveness

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from Point A to Point B can be described as

The concept of elasticity applies to

If the demand for pineapples is unit elastic,the value of the price elasticity of demand for pineapples is

Clear Window Manufacturer wants to increase the quantity of windows it sells by 10%.If the price elasticity of demand is 5,the manufacturer must

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Therefore,using initial value,a 1% increase in the price of the car will result in a ________ in the quantity demanded of cars.

The more substitutes there are for a product,

When the price of milk increases 6%,quantity demanded decreases 4%.The price elasticity of demand for milk is

An Internet company wants to increase the consumption of Internet packages by 15%.The price elasticity of demand for Internet packages is 2.The telephone company should

When the price of a car is $25,000,car sales are 10,000 per month.When the price of a car increases to $29,000,car sales fall to 8,000 per month.Using the initial-value method,the demand for cars is

First Choice Cracker company needs to increase the price of crackers by 5%,based on a substantial increase in input costs such as flour.The price elasticity of demand for crackers is 0.4.The company can expect the consumption of cereal to

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $2 to $4,the price elasticity of demand equals

When the price of bricks increases 5%,quantity demanded decreases 15%.The price elasticity of demand for bricks is

The short run price elasticity of demand for gasoline is 0.5,and the long run price elasticity of demand for gasoline is 1.1.Demand for gasoline is in the short run and in the long run.

At a price of $25,a store can sell 28 picture frames a day.If the price falls to $20,the store can sell 35 picture frames a day.Using the initial-value method,the price elasticity of demand is

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is decreased from $10 to $8,the price elasticity of demand equals

Assume Sarah is a CPA who earns $85,000 a year and her favorite entertainment magazine costs her $15 a year.For her,the price elasticity of demand for the magazine is likely to be

-Refer to Figure 5.2.Using the initial-value method,the value of the price elasticity of demand from Point E to Point F can be described as

When Luna Hair Salon raised its hair cut prices by 10% because of an increase in rent cost,it lost a quarter of its customers.The price elasticity of demand for its hair cut is

-Refer to Figure 5.1.Using the initial-value method,if the price of a hamburger is increased from $6 to $8,the price elasticity of demand equals

At a price of $4,a gas station sold 100 gallons of gasoline per week.When the price rose to $4.5,only 80 gallons were sold per week.Using the initial-value method,the price elasticity of demand for gasoline at Greedy Inc.Gas Station is