Question 1

When the price of toothpaste increases by 15 percent, the quantity of toothpaste demanded falls by 30 percent. Calculate the price elasticity of demand. Is the demand for toothpaste elastic, inelastic, or unit elastic?

Accepted Answer

Price elasticity of demand = [-30/15] = -2. Since the absolute value of the price elasticity is greater than one, the demand for toothpaste is elastic.

Question 2

How does one determine whether demand is elastic, inelastic, or unit elastic?

Accepted Answer

If the absolute value of the price elasticity of demand is greater than one, demand is elastic. If it is less than one, demand is inelastic. If the absolute value of the price elasticity of demand is equal to one, demand is unit elastic.

Question 3

When the price of toilet paper falls by 20 percent, the quantity of toilet paper demanded rises by 10 percent. Calculate the price elasticity of demand. Is the demand for toilet paper elastic, inelastic, or unit elastic?

Accepted Answer

Price elasticity of demand = [10/-20] = -0.5. Since the absolute value of the price elasticity is less than one, the demand for toilet paper is inelastic.

Question 4

Explain how it is possible for a downward-sloping demand curve to have a constant slope but still have a variation of elasticity of demand along it.

Accepted Answer

The answer of Explain how it is possible for a...

Question 5

If the elasticity of demand were positive what would this imply about the shape of the demand curve? Why is it that we are unlikely to find a price elasticity of demand with a positive value?

Accepted Answer

The answer of If the elasticity of demand were positive...

Question 6

In many large American cities it is common to witness private motorists pulling up to municipal bus stations and allowing perfect strangers to ride into downtown with them in order to take advantage of the high occupancy vehicle lanes that require two or more drivers. Using the concept of elasticity of demand and total revenue explain why public transit authorities might be concerned with this practice.

Accepted Answer

The answer of In many large American cities it is...

Question 7

What does elasticity measure?

Accepted Answer

The answer of What does elasticity measure?...

Question 8

In the past dating was a fairly simple activity in the United States. If there was someone you wanted to go out with you would call them or ask them to go out for dinner and a movie. Nowadays it appears that many people are willing to pay large amounts of money to professional dating services to find a compatible mate. This idea is not a new one but it has increased quite dramatically in popularity. What does this suggest about what kind of good dating services might be and why? Are we likely to find this type of service be more or less prevalent in poorer countries?

Accepted Answer

The answer of In the past dating was a fairly...

Question 9

What does it mean for a good to have a perfectly inelastic demand? Draw a demand curve of this type. Explain why it has the shape that it does.

Accepted Answer

The answer of What does it mean for a good...

Question 10

Assume a customer of natural gas is negotiating with his supplier over the telephone. At the time prices of all the supplier's competitors are precisely the same. The customer tells the supplier that if he raises his price even one penny he will walk away. What does the perceived demand curve for natural gas look like for this customer? Why?

Accepted Answer

The answer of Assume a customer of natural gas is...

Question 11

Why is the price elasticity of demand generally a negative number?

Accepted Answer

The answer of Why is the price elasticity of demand...

Question 12

Assume that that the two graphs below are identical demand curves for hamburger. The only difference is that the one on the left measures hamburger in pounds and the one on the right measures hamburger in ounces. The elasticity of demand between the prices of $3 and $2 should be the same in both cases. However, prove that calculating the slopes between these two points on each graph would not be helpful in determining elasticity of demand.

Accepted Answer

The answer of Assume that that the two graphs below...

Question 13

What does it mean for a good to have a perfectly elastic demand? Draw a demand curve of this type. Explain why it has the shape that it does.

Accepted Answer

The answer of What does it mean for a good...

Question 14

The price elasticity of demand for gasoline is -0.8. What must occur to the price of gasoline in order for quantity demanded to rise by 20 percent?

Accepted Answer

The answer of The price elasticity of demand for gasoline...

Question 15

Why isn't slope as useful as elasticity to measure the responsiveness of one variable to another?

Accepted Answer

The answer of Why isn't slope as useful as elasticity...

Question 16

Define price elasticity of demand. What does it measure?

Accepted Answer

The answer of Define price elasticity of demand. What does...

Question 17

Refer to the information provided in Scenario 1 below to answer the following questions.
SCENARIO 1: The following diagram represents the U.S. market for oil. 
-Refer to Scenario 1. Use the total revenue test (on all oil sold) to determine elasticity of demand with a price drop from $18 to $16.

Accepted Answer

The answer of Refer to the information provided in Scenario...

Question 18

Compare and contrast the two demand curves depicted in the graph below.

Accepted Answer

The answer of Compare and contrast the two demand curves...

Question 19

The price elasticity of demand for new stereos is -2. Suppose a stereo store wishes to increase its sales by 15 percent. What should the firm do?

Accepted Answer

The answer of The price elasticity of demand for new...

Question 20

If the price elasticity of demand for chocolate is -2.0 what should we expect would happen to consumption of chocolate if the price falls by 10%? What about a 50% decrease?

Accepted Answer

The answer of If the price elasticity of demand for...

Quiz 5: Elasticity