Question 1

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 allows us to calculate a consistent value for the elasticity, regardless of whether the price increases or decreases. This is because it takes into account the percentage changes in both price and quantity demanded, rather than just focusing on one. It does not assume that total revenue stays constant, nor does it restrict elasticity values to between 0 and 1.

Question 2

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 more specific the good, the more elastic the demand tends to be. A large pepperoni pizza from a specific brand like Domino's is more specific than just pizza, making its demand more elastic. A large pizza is also more specific than just pizza, making its demand more elastic as well. Therefore, the most inelastic demand would be for just generic pizza, which has a broad appeal and does not specify any particular brand or type.

Question 3

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 very few substitutes for tires, making consumers less likely to be responsive to changes in price. Additionally, the necessity of tires for driving means that even if prices increase, consumers would still need to purchase them. Income changes may have some impact on demand, but overall the demand for tires is not highly responsive to such changes.

Question 4

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

Since there are no good substitutes for motor oil, consumers will continue to demand it even if its price increases. Therefore, the demand for motor oil would tend to be inelastic.

Question 5

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

The price elasticity of demand formula is: % change in quantity demanded / % change in price
Using the midpoint method, we can calculate the % change in quantity demanded and % change in price:
% change in quantity demanded = (New Quantity - Old Quantity) / [(New Quantity + Old Quantity)/2] = (-50) / 200 = -0.25
% change in price = (New Price - Old Price) / [(New Price + Old Price)/2] = (0.001) / 10 = 0.0001
Substituting the values in the price elasticity of demand formula:
2 = (-0.25) / 0.0001
Therefore, a 0.1% increase in price would result in a % change in quantity demanded of:
% change in quantity demanded = 2 x 0.1% = 0.2%
The only option consistent with this result is D, where the quantity of the good demanded decreases by 0.2 percent.

Question 6

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

Using the midpoint method formula:

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

Plugging in the values:

Price elasticity of demand = [(800 - 600) / ((800 + 600) / 2)] / [(5.75 - 6.50) / ((5.75 + 6.50) / 2)]

Price elasticity of demand = [200/700] / [-0.75/6.125] = -0.857 / -0.122 = 7.032786885

The absolute value of elasticity is 7.03, which is greater than 1, indicating a price elastic demand. Therefore, the best choice is C, 2.33, which is the closest value to 7.03 among the given choices.

Question 7

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

Accepted Answer

The answer of Which of the following expressions can be...

Question 8

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 9

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 is calculated as the percentage change in quantity demanded divided by the percentage change in price. This formula measures the responsiveness of consumers' demand for a good or service to changes in its price.

Question 10

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, we have:

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

Let's assume the initial price and quantity are P1 and Q1, respectively. We want to find the new price (P2) that will lead to a 10 percent decrease in quantity demanded (i.e., Q2 = 0.9Q1).

0.75 = [(0.9Q1 - Q1) / ((0.9Q1 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]

0.75 = [-0.1 / 0.45] / [(P2 - P1) / ((P2 + P1)/2)]

0.75 = -0.2222 / [(P2 - P1) / ((P2 + P1)/2)]

(P2 - P1) / ((P2 + P1)/2) = -0.2222 / 0.75

P2 - P1 = -0.2222 / 0.75 * [(P2 + P1)/2]

P2 - P1 = -0.2963 * [(P2 + P1)/2]

2P2 - 2P1 = -0.2963 * (P2 + P1)

2P2 + 2P1 = 0.7037 * (P2 + P1)

2P2 = 0.7037 * P2 + 0.2963 * P1

P2 = (0.7037 / 1.2963) * P2 + (0.2963 / 1.2963) * P1

P2 = 1.32P2 - 0.228P1

0.32P2 = 0.228P1

P2 / P1 = 0.7125

This means that we need to increase the price by 71.25% to achieve a 10 percent decrease in quantity demanded. Therefore, only choice B (a 13.33 percent increase in the price of the good) is consistent with this result.

Question 11

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

Price elasticity of demand = (ΔQ/[(Q1+Q2)/2]) / (ΔP/[(P1+P2)/2])

ΔQ = 300 - 200 = 100
Q1+Q2/2 = (200+300)/2 = 250
ΔP = 2.50 - 3.00 = -0.50
P1+P2/2 = (2.50+3.00)/2 = 2.75

Price elasticity of demand = (100/250) / (-0.5/2.75) = 2.20

Therefore, the answer is C, and the price elasticity of demand for tortilla chips in the given price range is 2.20.

Question 12

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 midpoint formula for calculating price elasticity of demand is:

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

Using the values given, we get:

Price elasticity of demand = ((100 - 120) / ((100 + 120)/2)) / (($7 - $5) / (($7 + $5)/2))
Price elasticity of demand = (-20 / 110) / (2 / 6)
Price elasticity of demand = -0.18 / 0.33
Price elasticity of demand ≈ -0.55

Since price elasticity of demand is usually expressed as a positive value, we take the absolute value of our answer, which is approximately 0.55. This means that demand for this good is inelastic, as a 1% increase in price results in less than a 1% decrease in quantity demanded.

Question 13

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 medical necessity for the drug, which makes their demand inelastic. Inelastic demand refers to a situation where changes in price have little impact on the quantity demanded. Even if the price of the drug increases, people with high cholesterol will still demand the drug because not taking the medication can lead to serious health consequences.

Question 14

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 as:

%Δquantity demanded = [(700 - 400) / [(700 + 400)/2]] * 100% = 60%
%Δprice = [(10 - 15) / [(10 + 15)/2]] * 100% = -33.33%

Price elasticity of demand = %Δquantity demanded / %Δprice = -60% / -33.33% ≈ 1.8

Since the price elasticity of demand is greater than 1, we know that demand is elastic, meaning that a change in price will have a relatively larger effect on the quantity demanded.

Question 15

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 16

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 17

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 18

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

Using the midpoint formula:

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

= ((80-100)/((100+80)/2)) / ((7-5)/((5+7)/2))

= ( -20/90) / (2/6)

= -0.222 / 0.333

= -0.667

Since the value is negative, we ignore the sign and take the absolute value, giving us a price elasticity of demand of 0.667. Therefore, the best choice is B.

Question 19

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

Accepted Answer

The valid expression for the price elasticity of demand is in the format of a numerical value with no symbols or underscores. Option B is the only one that follows this format. The other options include underscores and letters, making them invalid expressions.

Question 20

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

The answer of When the price of a bracelet was...

Quiz 5: Elasticity and Its Application

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

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

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

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

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?

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

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

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

Economists compute the price elasticity of demand as the

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

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

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 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

The midpoint method is used to compute elasticity because it

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

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

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

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