Question 1

If the price elasticity of demand for good A is -1, then a 1% increase in

Accepted Answer

A price elasticity of demand of -1 indicates that a 1% increase in the price of good A will result in a 1% decrease in the quantity demanded of good A. Therefore, option D is the correct choice. The other options are not related to price elasticity of demand but to income elasticity of demand and market price changes.

Question 2

The price elasticity of demand shows

Accepted Answer

The price elasticity of demand measures the responsiveness or sensitivity of consumers to a change in the price of a good or service. It is calculated as the proportional change in quantity demanded divided by the proportional change in price. Therefore, it shows the proportionate amount by which the quantity demanded changes in response to a proportionate change in price.

Question 3

The local baseball stadium's concession stands previously sold hot dogs for 80 cents apiece. At that price, when a baseball fan went to watch a baseball game, he bought 2 hotdogs. But now that the stadium has a "dime-a-dog night," he has purchased 6 hot dogs. What is the approximate value of this individual's absolute price elasticity of demand for hot dogs?

Accepted Answer

A

Question 4

When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the absolute price elasticity of demand for soft drinks was approximately equal to

Accepted Answer

Using the midpoint formula for price elasticity of demand:

%ΔQd = [(Q2-Q1)/((Q2+Q1)/2)] * 100

%ΔP = [(P2-P1)/((P2+P1)/2)] * 100

Elasticity (|E|) = |%ΔQd / %ΔP|

Where Q1 = 100 cans, Q2 = 85 cans, P1 = $0.60, and P2 = $0.75

%ΔQd = [(85-100)/((85+100)/2)] * 100 = -15.79%
%ΔP = [(0.75-0.60)/((0.75+0.60)/2)] * 100 = 20.00%
|E| = |-15.79/20.00| = 0.79

Therefore, the absolute price elasticity of demand for soft drinks was approximately equal to 0.73 (closest answer choice).

Question 5

Which of the following statements about demand and price elasticity of demand is TRUE?

Accepted Answer

The demand curve typically has a negative slope, indicating that as the price decreases, the quantity demanded increases, and vice versa. The price elasticity of demand measures the responsiveness of quantity demanded to a change in price, and because the demand curve slopes downward, this elasticity is negative, reflecting an inverse relationship between price and quantity demanded.

Question 6

A 2 percent rise in the price of a good leads to a 2 percent decrease in quantity demanded. The absolute price elasticity of demand is

Accepted Answer

The answer of A 2 percent rise in the price...

Question 7

An absolute price elasticity of demand equal to 0.4 indicates that a

Accepted Answer

The answer of An absolute price elasticity of demand equal...

Question 8

Even though price elasticity of demand is always ________, by convention its absolute value is always discussed as a ________.

Accepted Answer

Price elasticity of demand is always negative because as the price of a good increases, the quantity demanded decreases. However, by convention, the absolute value of price elasticity of demand is always discussed as a positive number because it represents the magnitude of the responsiveness of quantity demanded to a change in price.

Question 9

Suppose the quantity demanded of ice cream cones increases from 400 to 425 cones a day when the price is reduced from $1.50 to $1.25. In this situation, the elasticity of demand, calculated using the average method, is

Accepted Answer

The answer of Suppose the quantity demanded of ice cream...

Question 10

The price elasticity of demand is a measure of

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good changes in response to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. A high price elasticity of demand means that a small change in price results in a large change in quantity demanded, indicating that the good is highly responsive to changes in price. A low price elasticity of demand means that a change in price has little effect on the quantity demanded, indicating that the good is less sensitive to changes in price.

Question 11

The price elasticity of demand is

Accepted Answer

The price elasticity of demand is always negative, as the quantity demanded decreases as the price increases. However, by convention, economists express the price elasticity of demand as an absolute value to remove any negative signs and have a consistent measure of elasticity between different goods. Therefore, option B is the correct choice.

Question 12

Suppose that when the price of milk rises 20%, the quantity demanded of milk falls 10%. Based on this information, what is the approximate absolute price elasticity of demand for milk?

Accepted Answer

The answer of Suppose that when the price of milk...

Question 13

If the absolute price elasticity of demand is 2.0, a 5 percent decrease in price will increase quantity demanded by

Accepted Answer

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

Question 14

The price elasticity of demand measures

Accepted Answer

The price elasticity of demand measures the consumers' sensitivity to a price change. This means it examines how much the demand for a product or service changes in response to a change in price.

Question 15

If price decreases by 10 percent and quantity demanded increases by 30 percent, the price elasticity of demand will be

Accepted Answer

Using the formula for price elasticity of demand:
Elasticity = percentage change in quantity demanded / percentage change in price
We can calculate:
Elasticity = 30% / (-10%) = -3
Since the elasticity is negative, we take the absolute value of it to get 3. Therefore, the price elasticity of demand is 3, which means that the quantity demanded is relatively responsive to changes in price.

Question 16

A good's price elasticity of demand can be calculated by using the formula of

Accepted Answer

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price, which measures how much the quantity demanded of a good responds to a change in the price of that good.

Question 17

Six months ago, the price of gasoline was $2.20 per gallon. Now, the price is $2.40 per gallon. In response to this price increase, the number of gallons of gasoline purchased has declined by 2 percent. Based on this information, what is the absolute price elasticity of demand for gasoline?

Accepted Answer

Absolute price elasticity of demand = percentage change in quantity demanded / percentage change in price

Percentage change in quantity demanded = (2% decrease in quantity demanded) / (100% - 2%) = -1.96%

Percentage change in price = ($2.40 - $2.20) / $2.20 = 9.09%

Absolute price elasticity of demand = (-1.96%) / (9.09%) = 0.23

Question 18

When economists want to obtain a measure of the responsiveness of quantity demanded to changes in price, they use

Accepted Answer

The price elasticity of demand is the measure of responsiveness of quantity demanded to changes in price. It takes into account both the percentage change in price and the percentage change in quantity demanded, making it a more accurate measure than just looking at the slope of the demand curve or only the percentage change in quantity demanded. The cross-price elasticity of demand is not relevant in this case, as it measures how changes in the price of one good affect the demand for another good.

Question 19

The formal definition of price elasticity of demand is

Accepted Answer

The formal definition of price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. This measures the responsiveness of quantity demanded to changes in price. Choice A is close, but it doesn't account for the fact that the change in quantity demanded and change in price could be in different proportions. Choices B and D are incorrect as they don't capture the concept of elasticity.

Question 20

If the absolute price elasticity of demand for good Y is 0.75, when there is a 30 percent increase in price, we can conclude that quantity demanded

Accepted Answer

The formula to calculate the percentage change in quantity demanded is:

(% change in Qd) = (elasticity) x (% change in price)

Substituting the given values, we get:

(% change in Qd) = (0.75) x (30) = 22.5

Therefore, quantity demanded has fallen by 22.5 percent.

Quiz 19: Demand and Supply Elasticity