Question 1

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

This is because high cholesterol is a health condition that requires treatment, and the prescription drug is likely the most effective way to control it. Therefore, the demand for the drug is not likely to change significantly, even if the price were to increase. In other words, the demand is not very responsive to changes in price, making it inelastic.

Question 2

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 relatively inelastic because there are no good substitutes, and consumers must have tires to operate their vehicles. This means that even if tire prices increase, the demand for them will not decrease significantly.

Question 3

Which of the following expressions is valid for the price elasticity of demand?
A) 
B) 
C) 
D)

Accepted Answer

The valid expression for the price elasticity of demand should have a numerical value between 0 and -∞ (inclusive). Option B falls within this range, while the other options have alphabetical characters or numerical values outside this range.

Question 4

Economists compute the price elasticity of demand as the
A) percentage change in price divided by the percentage change in quantity demanded.
B) change in quantity demanded divided by the change in the price.
C) percentage change in quantity demanded divided by the percentage change in price.
D) percentage change in quantity demanded divided by the percentage change in income.

Accepted Answer

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Question 5

The midpoint method for calculating elasticities is convenient in that it allows us to
A) ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price.
B) calculate the same value for the elasticity, regardless of whether the price increases or decreases.
C) assume that sellers' total revenue stays constant when the price changes.
D) restrict all elasticity values to between 0 and 1.

Accepted Answer

The midpoint method calculates the same value for the elasticity, regardless of whether the price increases or decreases. It does this by taking the average of the initial and final values of both price and quantity, allowing us to avoid the problem of different percentage changes at different points along a demand or supply curve.

Question 6

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

The fact that there are few substitutes for motor oil suggests that consumers will be less responsive to changes in the price of motor oil, making the demand for motor oil inelastic.

Question 7

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about
A) 0.55.
B) 1.83.
C) 2.
D) 10.

Accepted Answer

The answer of When the price of a good is...

Question 8

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.

Accepted Answer

Using the midpoint method, we calculate the price elasticity of demand to be -1.33, which is greater than 1, indicating that demand is elastic.

Question 9

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is
A) 1.14.
B) 1.
C) 0.25.
D) 0.13.

Accepted Answer

Using the midpoint method formula:

Price elasticity of demand = ((Q2 - Q1) / ((Q2 + Q1)/2)) / ((P2 - P1) / ((P2 + P1)/2))

Where:
Q1 = 128
Q2 = 112
P1 = 28
P2 = 32

Price elasticity of demand = ((112 - 128) / ((112 + 128)/2)) / ((32 - 28) / ((32 + 28)/2))

Price elasticity of demand = (-16 / 120) / (4 / 30)

Price elasticity of demand = -0.1333 / 0.1333

Price elasticity of demand = -1, which is an inelastic demand because of the absolute value of price elasticity of demand is less than 1.

Question 10

For which of the following goods is the price elasticity of demand most inelastic?
A) pizza
B) large pizza
C) large pepperoni pizza
D) Domino's large pepperoni pizza

Accepted Answer

The less specific the good, the more inelastic the price elasticity of demand. Pizza is a general term, while the other options get progressively more specific. Therefore, pizza (Option A) is the most inelastic.

Question 11

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.

Accepted Answer

The answer of When the price of candy bars is...

Question 12

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
A) demand for ice cream cones in this price range is elastic.
B) demand for ice cream cones in this price range is inelastic.
C) demand for ice cream cones in this price range is unit elastic.
D) price elasticity of demand for ice cream cones in this price range is 0.

Accepted Answer

The answer of Suppose that 50 ice cream cones are...

Question 13

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
A) 0.35.
B) 0.43.
C) 2.33.
D) 2.89.

Accepted Answer

The answer of Suppose the price of a bag of...

Question 14

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 15

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
A) 0.22.
B) 0.67.
C) 1.33.
D) 1.50.

Accepted Answer

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

Using the midpoint method:
% change in quantity demanded = (change in quantity demanded / average quantity demanded) x 100%
= [(80-100) / ((80+100)/2)] x 100%
= -20/90 x 100%
= -22.22%

% change in price = (change in price / average price) x 100%
= [(7-5) / ((7+5)/2)] x 100%
= 2/6 x 100%
= 33.33%

Price elasticity of demand = (-22.22% / 33.33%)
= -0.6666
= 0.67 (approx.)

Therefore, the price elasticity of demand is about 0.67. Option B is the correct choice.

Question 16

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 method, the price elasticity of demand is calculated as:
Price elasticity of demand = ((Q2 - Q1)/((Q2 + Q1)/2))/((P2 - P1)/((P2 + P1)/2))
Assuming the initial price and quantity are P1 and Q1, respectively, and the new price is P2 = 1.001P1, we can use the elasticity of demand to solve for the new quantity demanded (Q2).
2 = ((Q2 - Q1)/((Q2 + Q1)/2))/((1.001P1 - P1)/((1.001P1 + P1)/2))
2 = ((Q2 - Q1)/((Q2 + Q1)/2))/(0.0005P1)
Q2 - Q1 = 0.001P1(Q2 + Q1)/2
Q2 - Q1 = 0.0005P1(Q2 + Q1)
Q2 - Q1 = 0.0005P1Q2 + 0.0005P1Q1
0.9995Q2 = 1.0005Q1
Q2 = 1.001Q1
So, a 0.1 percent increase in the price of the good (i.e., P2 = 1.001P1) results in a 0.1 percent decrease in the quantity demanded (i.e., Q2 = 0.999Q1). This can be calculated as:
((0.999Q1 - Q1)/((0.999Q1 + Q1)/2))/((1.001P1 - P1)/((1.001P1 + P1)/2)) = 2
-0.001 = 0.002/((1.001P1 + P1)/2)
-0.001 = 0.001P1/(1.001P1 + P1)
-0.001(1.001P1 + P1) = 0.001P1
-0.001P1 = -0.001001P1 - 0.001P1
-0.001P1 = -0.001001P1 - 0.001P1
-0.000001P1 = -0.001001P1
P1 = 1000
So, a 0.1 percent increase in price from $1000 to $1001 leads to a decrease in quantity demanded from 200 to 199.8, which is a decrease of 0.2 percent [(199.8-200)/((199.8+200)/2)] . Therefore, the correct answer is D.

Question 17

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is
A) elastic, and her demand curve would be relatively flat.
B) elastic, and her demand curve would be relatively steep.
C) inelastic, and her demand curve would be relatively flat.
D) inelastic, and her demand curve would be relatively steep.

Accepted Answer

The answer of When the price of chai tea lattés...

Question 18

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, we can solve for the percent change in price necessary for a 10% decrease in quantity demanded:
Price elasticity of demand = percent change in quantity demanded / percent change in price
0.75 = -10% / percent change in price
percent change in price = -10% / 0.75 = -13.33%
Therefore, a 13.33% increase in price (choice B) is consistent with a 10% decrease in quantity demanded.

Question 19

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is
A) 0.33.
B) 0.45.
C) 2.20.
D) 3.00.

Accepted Answer

The answer of Suppose the price of a bag of...

Question 20

Which of the following expressions can be used to compute the price elasticity of demand? 
A) 
B) 
C) 
D)

Accepted Answer

The expression in choice C includes the necessary variables to calculate price elasticity of demand, which are the percentage change in quantity demanded and the percentage change in price. The other choices are not valid expressions for calculating price elasticity of demand.

Quiz 5: Elasticity and Its Application

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

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

Which of the following expressions is valid for the price elasticity of demand?

Economists compute the price elasticity of demand as the

The midpoint method for calculating elasticities is convenient in that it allows us to

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

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

For which of the following goods is the price elasticity of demand most inelastic?

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

The midpoint method is used to compute elasticity because it

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

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?

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés 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?

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is

Which of the following expressions can be used to compute the price elasticity of demand?