Question 1

Price elasticity of demand is defined as:
A) the slope of the demand curve.
B) the slope of the demand curve divided by the price.
C) the percentage change in price divided by the percentage change in quantity demanded.
D) the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, calculated as the percentage change in quantity demanded divided by the percentage change in price.

Question 2

If the demand curve is perfectly elastic, then an increase in supply will:
A) decrease the price but result in no change in the quantity exchanged.
B) increase the quantity exchanged but result in no change in the price.
C) increase the price but result in no change in the quantity exchanged.
D) increase both the price and the quantity exchanged.

Accepted Answer

When the demand curve is perfectly elastic, it means that consumers are willing to buy any quantity of the good at a certain price, but no more than that price. Therefore, if the supply increases, the quantity exchanged will increase to absorb the extra supply, but the price will remain constant because the demand curve does not allow for a price change.

Question 3

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:
A) elasticity of demand for potato chips is 3.
B) cross-price elasticity of demand for soda is -3.
C) elasticity of demand for potato chips is -3.
D) elasticity of demand for soda 3.

Accepted Answer

Cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. It is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. In this case, a 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded, indicating that the goods are complements and the cross-price elasticity of demand for soda with respect to the price of potato chips is 3 (positive, indicating complements). The negative option is incorrect because the increase in soda demand suggests a positive relationship, not negative.

Question 4

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:
A) total revenue will decrease.
B) total revenue will increase.
C) total revenue will remain constant.
D) the elasticity of demand will increase.

Accepted Answer

The price elasticity of demand is evident here; a 25% decrease in price leads to a 20% increase in quantity demanded, which is not enough to offset the price reduction, leading to a decrease in total revenue.

Question 5

Demand is said to be _______ when the quantity demanded changes at the same proportion as the price.
A) elastic
B) unit elastic
C) inelastic
D) independent

Accepted Answer

Unit elastic demand occurs when the percentage change in quantity demanded is exactly the same as the percentage change in price, meaning the demand responds proportionately to changes in price.

Question 6

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:
A) rise and the equilibrium quantity to fall.
B) rise and the equilibrium quantity to stay the same.
C) rise and the equilibrium quantity to rise.
D) stay the same and the equilibrium quantity to fall.

Accepted Answer

When demand is perfectly inelastic, quantity demanded does not change with price changes. Therefore, a reduction in supply will increase the price, but the quantity will remain the same.

Question 7

When demand is inelastic:
A) price elasticity of demand is greater than 1.
B) consumers are not very responsive to changes in price.
C) the percentage change in quantity demanded resulting from a price change is greater than the percentage change in price.
D) demand curves appear to be fairly flat.

Accepted Answer

When demand is inelastic, consumers are not very responsive to changes in price, meaning that changes in price do not significantly affect the quantity demanded. This is the definition of inelastic demand.

Question 8

The price elasticity of demand measures the:
A) responsiveness of quantity demanded to a change in quantity supplied.
B) responsiveness of price to a change in quantity demanded.
C) responsiveness of quantity demanded to a change in price.
D) responsiveness of quantity demanded to a change in income.

Accepted Answer

The price elasticity of demand specifically measures how much the quantity demanded of a good responds to a change in the price of that good, indicating the degree to which changes in price impact the quantity demanded.

Question 9

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?
A) 0.1
B) 0.8
C) 1.0
D) 10.0

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 is ((4-5)/5)*100 = -20%, and the percentage change in price is ((50-40)/40)*100 = 25%. Thus, elasticity = |-20%/25%| = 0.8.

Question 10

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:
A) macaroni is a normal good and price elasticity of demand is greater than 1.
B) macaroni is an inferior good and price elasticity of supply is equal to zero.
C) macaroni is an inferior good and price elasticity of supply is infinite.
D) macaroni is an inferior good and price elasticity of demand is less than 1.

Accepted Answer

Macaroni and cheese is an inferior good because demand decreases as income increases. The price elasticity of supply being infinite suggests that the price remains constant regardless of changes in demand.

Question 11

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?
A) 0.235
B) 2.00
C) 4.25
D) 6.33

Accepted Answer

The answer of Suppose that Bobo purchases 1 pizza per...

Question 12

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:
A) increasing the price of game tickets because demand is inelastic.
B) not changing the price of game tickets because demand is unit elastic.
C) increasing the price of game tickets because demand is elastic.
D) decreasing the price of game tickets because demand is elastic.

Accepted Answer

Since the price elasticity of demand is less than 1 (0.89), it indicates that demand is inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price. Therefore, increasing the price of game tickets would lead to a smaller percentage decrease in quantity demanded, which should increase total revenue.

Question 13

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:
A) elasticity of demand for soda 0.5 and is inelastic.
B) elasticity of demand for iced tea is 2 and is elastic.
C) cross-price elasticity of demand for soda is -0.5.
D) cross-price elasticity of demand for iced tea is -2.

Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. Here, a 10% increase in the price of soda leads to a 20% increase in the quantity of iced tea demanded, indicating a cross-price elasticity of 20%/10% = 2. Since the goods are substitutes, the elasticity is positive, so the correct answer is D.

Question 14

Demand is said to be _______ when the quantity demanded is very responsive to changes in price.
A) elastic
B) unit elastic
C) inelastic
D) independent

Accepted Answer

Demand is considered elastic when the quantity demanded changes significantly in response to price changes. This means consumers are very responsive to price changes, either increasing or decreasing their demand substantially when prices fluctuate.

Question 15

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in _______.
A) quantity supplied
B) the slope of the demand curve
C) price
D) the slope in the supply curve

Accepted Answer

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

Question 16

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?
A) 0.15
B) 3.0
C) 0.10
D) 0.05

Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, a 15 percent decrease in quantity demanded divided by a 5 percent increase in price gives an elasticity of 3.0 (15% / 5% = 3.0).

Question 17

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:
A) 20 units.
B) 10 units.
C) 5 units.
D) 0 units.

Accepted Answer

When demand is unit elastic, the percentage change in quantity demanded is equal to the percentage change in price. Doubling the price from $20 to $40 (a 100% increase) would result in a 50% decrease in quantity demanded, from 10 units to 5 units.

Question 18

Demand is said to be _______ when the quantity demanded is not very responsive to changes in price.
A) independent
B) inelastic
C) unit elastic
D) elastic

Accepted Answer

Demand is considered inelastic when the quantity demanded changes very little with a change in price.

Question 19

If cola and iced tea are good substitutes for consumers, then it is likely that:
A) their cross price elasticities are greater than zero.
B) their price elasticities of demand are less than one.
C) their income elasticities are less than zero.
D) their price elasticities of supply are less than one .

Accepted Answer

If cola and iced tea are good substitutes for consumers, their cross price elasticities are greater than zero. This means if the price of one increases, the demand for the other will increase as consumers switch to the cheaper alternative.

Question 20

A price cut will increase the total revenue a firm receives if the demand for its product is:
A) unit inelastic.
B) unit elastic.
C) inelastic.
D) elastic.

Accepted Answer

When demand is elastic, a price cut leads to a proportionally larger increase in quantity demanded, which increases total revenue. Elastic demand means that consumers are more responsive to price changes.

Quiz 5: Elasticity

Price elasticity of demand is defined as:

If the demand curve is perfectly elastic, then an increase in supply will:

A 10 percent decrease in the price of potato chips leads to a 30 percent increase in the quantity of soda demanded. It appears that:

A 25 percent decrease in the price of breakfast cereal leads to a 20 percent increase in the quantity of cereal demanded. As a result:

Demand is said to be _______ when the quantity demanded changes at the same proportion as the price.

If the demand curve for a life-saving medicine is perfectly inelastic, then a reduction in supply will cause the equilibrium price to:

When demand is inelastic:

The price elasticity of demand measures the:

Suppose that Mimi plays golf 5 times per month when the price is $40 and 4 times per month when the price is $50. What is the price elasticity of Mimi's demand curve?

A 10 percent increase in income leads to a 15% decrease in the quantity of macaroni and cheese demanded but no change in the price of macaroni and cheese. From this information, we can assume:

Suppose that Bobo purchases 1 pizza per month when the price is $19 and 3 pizzas per month when the price is $15. What is the price elasticity of Bobo's demand curve?

The price elasticity of demand for tickets to local baseball games is estimated to be equal to 0.89. In order to boost ticket revenues, an economist would advise:

A 10 percent increase in the price of soda leads to a 20 percent increase in the quantity of iced tea demanded. It appears that:

Demand is said to be _______ when the quantity demanded is very responsive to changes in price.

The elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in _______.

Billy Bob's Barber Shop knows that a 5 percent increase in the price of their haircuts results in a 15 percent decrease in the number of haircuts purchased. What is the elasticity of demand facing Billy Bob's Barber Shop?

The demand for a product is unit elastic. At a price of $20, 10 units of a product are sold. If the price is increased to $40, then one would expect sales to equal:

Demand is said to be _______ when the quantity demanded is not very responsive to changes in price.

If cola and iced tea are good substitutes for consumers, then it is likely that:

A price cut will increase the total revenue a firm receives if the demand for its product is: