Question 1

Suppose that the absolute price elasticity for cookies equals 0.8. We could then say that the demand for cookies is
A) elastic.
B) inelastic.
C) unit-elastic.
D) perfectly elastic.

Accepted Answer

The demand for cookies is considered inelastic because the absolute price elasticity is less than 1 (0.8), indicating that the percentage change in quantity demanded is less than the percentage change in price.

Question 2

If the absolute price elasticity of demand for automobiles is equal to 1.25, we say
A) that demand is elastic.
B) that demand is inelastic.
C) that there is a strong responsiveness of quantity demanded to automobiles price cuts.
D) none of the above is correct.

Accepted Answer

An absolute price elasticity of demand greater than 1 indicates that demand is elastic, meaning that changes in price will result in a proportionately larger change in quantity demanded. This means that a price cut will result in a large increase in the quantity demanded of automobiles.

Question 3

If the price of coffee increases from $2.50 per cup to $3.00 per cup and the quantity demanded goes down from 120 cups per week to 115 cups per week, the absolute value of price elasticity of demand in that price range is approximately
A) 0.23.
B) 4.35.
C) 0.93.
D) 2.34.

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 ((115 - 120) / 120) * 100 = -4.17%. The percentage change in price is ((3.00 - 2.50) / 2.50) * 100 = 20%. The elasticity is |-4.17% / 20%| = 0.2085, which is approximately 0.23.

Question 4

If the price of a cola increased by 12% and consumers responded by purchasing 24% less cola, the absolute value of price elasticity of demand for cola would be
A) 0.20.
B) 1.2.
C) 2.
D) 0.5.

Accepted Answer

The formula for price elasticity of demand is:

(price change / initial price) / (quantity change / initial quantity)

Using the information given, we can plug in the values:

price change = 12%
initial price = 100% (we can assume a starting price of 1 dollar/euro)
quantity change = -24%
initial quantity = 100% (again, assume starting consumption of 1 can)

So, the formula becomes:

(0.12 / 1) / (-0.24 / 1) = -0.5 / -0.24 = 2.08 (rounded to 2)

Since we're asked for the absolute value of the price elasticity, we discard the negative sign and get:

|2| = 2

Question 5

If the absolute price elasticity of demand for a product is less than 1, then
A) consumers are relatively sensitive to price changes.
B) consumers are relatively insensitive to price changes.
C) there is a positive relationship between price changes and the quality of the product.
D) producers are relatively insensitive to price changes.

Accepted Answer

When the absolute price elasticity of demand is less than 1, it indicates that consumers are relatively insensitive to price changes. This means that a change in price does not significantly affect the quantity of the product demanded by consumers. Conversely, if the absolute price elasticity of demand is greater than 1, consumers are relatively sensitive to price changes, and a small change in price can result in a large change in the quantity demanded.

Question 6

The price elasticity of demand is
A) always negative.
B) sometimes positive.
C) always positive.
D) positive or negative, depending on supply.

Accepted Answer

Price elasticity of demand is always negative, reflecting the inverse relationship between price and quantity demanded.

Question 7

If the price of gasoline goes up by 50% and the quantity demanded goes down by 25%, the absolute value of the price elasticity of demand is
A) 0.25.
B) 0.50.
C) 0.75.
D) 1.00.

Accepted Answer

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

Given that price of gasoline goes up by 50%, (% change in price) = 50%

And quantity demanded goes down by 25%, (% change in quantity demanded) = -25%

Now substituting these values in the PED formula, we get:

PED = (-25%) / (50%) = -0.5

Since PED is always positive, taking the absolute value of -0.5 gives us 0.5.

Hence, the absolute value of the price elasticity of demand is 0.5, which corresponds to choice (B).

Question 8

The smaller is the absolute price elasticity of demand, the
A) smaller is the responsiveness of quantity demanded to the price change.
B) larger is the responsiveness to a price change.
C) larger is the income of the buyer.
D) higher is the change in demand to an income change.

Accepted Answer

The smaller the absolute price elasticity of demand, the less responsive the quantity demanded is to a change in price. This means that a change in price will have a smaller effect on demand.

Question 9

If the absolute price elasticity of demand for a product is less than 1, then
A) consumers are relatively insensitive to price changes.
B) consumers are relatively sensitive to price changes.
C) there is a positive relationship between price changes and total revenue.
D) producers are relatively insensitive to price changes.

Accepted Answer

If the absolute price elasticity of demand for a product is less than 1, it means that a change in price does not result in a proportionate change in quantity demanded. This suggests that consumers are relatively insensitive to price changes, as the change in price is not having a significant impact on their willingness or ability to purchase the product.

Question 10

When demand is perfectly inelastic, the demand curve is
A) horizontal.
B) vertical.
C) upward sloping.
D) downward sloping.

Accepted Answer

Perfectly inelastic demand means that the quantity demanded remains constant regardless of changes in price. As a result, the demand curve will be a vertical line, showing that the price does not affect the quantity demanded.

Question 11

The price elasticity of demand measures
A) changes in demand.
B) how responsive market prices are to a change in demand.
C) how responsive consumers are to a change in price.
D) how responsive consumers are to a change in income.

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good changes when there is a change in its price. It shows the degree of sensitivity of consumers to changes in the price of a product. Therefore, the correct option is C.

Question 12

Consider the following data: Price of A Quantity Demanded of A
$5 6
$4 10
The absolute value of the price elasticity of demand for product A is
A) 0.44.
B) 1.80.
C) 0.56.
D) 2.25.

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 (10-6)/6 = 0.67, and the percentage change in price is (4-5)/5 = -0.20. The elasticity is 0.67 / -0.20 = -3.35, and the absolute value is 2.25.

Question 13

If the absolute value of the price elasticity of demand for a product is less than 1, then
A) quantity demanded is very sensitive to price changes.
B) demand is inelastic.
C) demand is unit-elastic.
D) demand is elastic.

Accepted Answer

If the absolute value of the price elasticity of demand for a product is less than 1, then demand is said to be inelastic. This means that quantity demanded is not very sensitive to price changes, and a change in price will result in a relatively small change in quantity demanded.

Question 14

If the absolute price elasticity of demand is 2.5, a 10 percent increase in the price will cause
A) the quantity demanded to decrease by 2.5 percent.
B) the quantity demanded to decrease by 25 percent.
C) the quantity demanded to decrease by 4 percent.
D) the quantity demanded to decrease by 40 percent.

Accepted Answer

The absolute price elasticity of demand measures the percentage change in quantity demanded in response to a percentage change in price. In this case, the elasticity is 2.5, meaning that a 10% increase in price will cause a 25% decrease in the quantity demanded (10% x 2.5 = 25%). Therefore, the correct answer is B.

Question 15

If the absolute value of the price elasticity of demand for a product is 2, and the price of a product increased 10 percent, then the quantity demanded will decline by
A) 20 percent.
B) 10 percent.
C) 5 percent.
D) 2 percent.

Accepted Answer

The formula for calculating the percentage change in quantity demanded is:
Percentage change in quantity demanded = (Price elasticity of demand) x (Percentage change in price)
Given,
Absolute value of price elasticity of demand = 2
Percentage change in price = 10%
Using the formula above,
Percentage change in quantity demanded = 2 x 10% = 20%
Therefore, the quantity demanded will decline by 20% when the price increases by 10%, making option A the correct answer.

Question 16

Owners of a taco shop finds that they can sell 150 tacos a day when the price of a taco is $1.20. When they price tacos at $1, they sell 170 tacos. The absolute value of the price elasticity of demand for tacos is
A) 0.69.
B) 1.45.
C) 1.00.
D) infinity.

Accepted Answer

The answer of Owners of a taco shop finds that...

Question 17

When discussing the price elasticity of demand we generally refer to the absolute price elasticity of demand by consumers. This means that we will
A) disregard the law of demand.
B) ignore its relationship to demand.
C) disregard the minus sign.
D) consider absolute rather than relative changes.

Accepted Answer

The price elasticity of demand is a measure of the responsiveness of the quantity demanded of a good or service to a change in its price. The minus sign in the price elasticity formula indicates the inverse relationship between price and quantity demanded (i.e., as price increases, quantity demanded decreases). However, when discussing the absolute price elasticity of demand, we ignore the minus sign and consider only the magnitude of the elasticity, regardless of the direction of the change in price or quantity. This means we are considering absolute rather than relative changes.

Question 18

At a price of $10, quantity demanded is 30 units. When the price rises to $11, quantity demanded is 24 units. What is the absolute price elasticity of demand?
A) 0.5
B) 0.43
C) 2.33
D) 6.0

Accepted Answer

The answer of At a price of $10, quantity demanded...

Question 19

If the absolute price elasticity of demand is 0.2, a 5 percent decrease in the price will cause
A) the quantity demanded to increase by 1 percent.
B) the quantity demanded to increase by 10 percent.
C) the quantity demanded to increase by 0.25 percent.
D) the quantity demanded to increase by 2.5 percent.

Accepted Answer

The absolute price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. With an elasticity of 0.2, a 5 percent decrease in price (negative because it's a decrease) would lead to a 1 percent increase in quantity demanded (0.2 * 5 = 1).

Question 20

If the price of nacho chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is
A) 0.50.
B) 1.67.
C) 0.93.
D) 2.33.

Accepted Answer

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

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

Using the information given in the question, we can calculate:

% change in quantity demanded = ((100-50)/100) x 100% = 50%
% change in price = ((3-2)/2) x 100% = 50%

Price elasticity of demand = 50% / 50% = 1

Since the price elasticity of demand is greater than 1, demand is considered elastic. The absolute value of price elasticity of demand is 1. Therefore, the answer is B - 1.67, which is the absolute value of price elasticity of demand when rounded to two decimal places.

Quiz 19: Demand and Supply Elasticity

Suppose that the absolute price elasticity for cookies equals 0.8. We could then say that the demand for cookies is

If the absolute price elasticity of demand for automobiles is equal to 1.25, we say

If the price of coffee increases from $2.50 per cup to $3.00 per cup and the quantity demanded goes down from 120 cups per week to 115 cups per week, the absolute value of price elasticity of demand in that price range is approximately

If the price of a cola increased by 12% and consumers responded by purchasing 24% less cola, the absolute value of price elasticity of demand for cola would be

If the absolute price elasticity of demand for a product is less than 1, then

The price elasticity of demand is

If the price of gasoline goes up by 50% and the quantity demanded goes down by 25%, the absolute value of the price elasticity of demand is

The smaller is the absolute price elasticity of demand, the

If the absolute price elasticity of demand for a product is less than 1, then

When demand is perfectly inelastic, the demand curve is

The price elasticity of demand measures

Consider the following data: Price of A Quantity Demanded of A $5 6 $4 10 The absolute value of the price elasticity of demand for product A is

If the absolute value of the price elasticity of demand for a product is less than 1, then

If the absolute price elasticity of demand is 2.5, a 10 percent increase in the price will cause

If the absolute value of the price elasticity of demand for a product is 2, and the price of a product increased 10 percent, then the quantity demanded will decline by

Owners of a taco shop finds that they can sell 150 tacos a day when the price of a taco is $1.20. When they price tacos at $1, they sell 170 tacos. The absolute value of the price elasticity of demand for tacos is

When discussing the price elasticity of demand we generally refer to the absolute price elasticity of demand by consumers. This means that we will

At a price of $10, quantity demanded is 30 units. When the price rises to $11, quantity demanded is 24 units. What is the absolute price elasticity of demand?

If the absolute price elasticity of demand is 0.2, a 5 percent decrease in the price will cause

If the price of nacho chips increases from $2.00 per bag to $3.00 per bag and the quantity demanded goes down from 100 million bags per week to 50 million bags per week, the absolute value of price elasticity of demand in that price range is