Question 1

Why do producers calculate the price elasticity of demand for their goods and services?
A) They want to know the goods and services for which consumers are most sensitive to price changes.
B) They want to be able to predict the future preferences of their customers.
C) They want to know that consumers will have the same response to a price change regardless of the good or service.
D) They want to understand what goods their customers dislike the most.

Accepted Answer

Producers calculate the price elasticity of demand for their goods and services to determine the degree to which consumers are sensitive to changes in the price of their product. This information can help them make decisions about pricing strategies and potentially adjust their pricing to maximize profits.

Question 2

Economists typically use the mid-point method of calculating elasticity because:
A) it is easier to calculate.
B) it is universally understood by all economists.
C) the negative sign can then be ignored.
D) the elasticity between two points is the same, regardless of the direction of the movement.

Accepted Answer

The mid-point method for calculating elasticity provides a consistent measure of elasticity that is independent of the direction of change. This means that whether prices are increasing or decreasing, the calculated elasticity between two points will be the same, avoiding the issue of getting different elasticity values depending on the direction of the price change.

Question 3

Suppose the price elasticity of demand for eggs is −0.27. Thus, −0.27 is:
A) the percentage change in the quantity demanded of eggs when the price of eggs increases by one percent.
B) the size of the shift in the demand for eggs when the price of eggs changes by one percent.
C) the size of the percentage change in the quantity supplied of eggs when the demand for eggs changes due to a price fluctuation.
D) the percentage change in the price of eggs when the quantity demanded of eggs increases by one percent.

Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. A negative price elasticity of demand (like in this case with a value of −0.27) means that as the price of eggs increases, the quantity demanded of eggs decreases, but the change in quantity demanded is not proportionally large compared to the change in price. Specifically, a 1% increase in the price of eggs is associated with a 0.27% decrease in the quantity demanded of eggs. Therefore, choice A is the correct answer.

Question 4

What does price elasticity measure?
A) How much a market responds to a change in market conditions
B) How much consumers or producers respond to a change in market price
C) How quickly consumers or producers respond to a change in market price
D) How quickly a market will respond to a change in market conditions

Accepted Answer

Price elasticity measures how much consumers or producers respond to a change in market price. It is a measure of the sensitivity of demand or supply to changes in price, and indicates how much the quantity demanded or supplied will change in response to a change in price.

Question 5

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:
A) price elasticity of demand.
B) price elasticity of supply.
C) cross-price elasticity of demand.
D) income elasticity of demand.

Accepted Answer

The given percentage change in quantity demanded (-0.02%) divided by the percentage change in price (1%) results in a price elasticity of demand of -0.02/1 = -0.02, indicating an inelastic demand for oil.

Question 6

If consumers' buying decisions are not very sensitive to changes in price, then their demand is:
A) more elastic.
B) less elastic.
C) perfectly inelastic.
D) unit elastic.

Accepted Answer

If consumers' buying decisions are not very sensitive to changes in price, then their demand is said to be less elastic. This means that a change in price will result in a relatively small change in the quantity demanded.

Question 7

If a small percentage change in price causes a larger percentage change in the quantity demanded, the good has:
A) an inelastic demand.
B) a low magnitude of response.
C) an elastic demand.
D) a high magnitude of response.

Accepted Answer

When a small percentage change in price causes a larger percentage change in the quantity demanded, the good has an elastic demand. This means that consumers are very sensitive to changes in price and are likely to respond by adjusting their purchasing behavior.

Question 8

The mid-point method of calculating price elasticity of demand measures the _____ changes in quantity demanded and price relative to a point midway between _____.
A) percentage; two points on a demand curve
B) absolute; two points on a demand curve
C) percentage; the demand and supply curves
D) absolute; the demand and supply curves

Accepted Answer

The mid-point method measures the percentage changes in quantity demanded and price relative to a point midway between two points on a demand curve.

Question 9

Measurements of elasticity include:
A) income elasticity of demand and income elasticity of supply.
B) price elasticity of demand and price elasticity of supply.
C) cross-price elasticity of demand and income elasticity of supply.
D) preference elasticity of demand and cross-price elasticity of supply.

Accepted Answer

The measurements of elasticity most commonly used in economics are the price elasticity of demand and the price elasticity of supply. These two measures are used to determine how sensitive consumers and producers are to changes in price.

Question 10

Consider the demand curve in the graph shown. What is the price elasticity of demand between a price of $4 and $6? 
A) −0.45
B) −2.20
C) −0.18
D) −0.40

Accepted Answer

The answer of Consider the demand curve in the graph...

Question 11

Elasticities are used to measure responses to a change in:
A) the price of a good.
B) the price of a related good.
C) income.
D) All of these are correct.

Accepted Answer

Elasticities can measure responses to changes in price, the price of related goods, and income. Therefore, all of the choices are correct.

Question 12

If supply and demand analysis is a measure of how, then elasticity is a measure of:
A) how much.
B) when.
C) why.
D) how quickly.

Accepted Answer

Elasticity measures how much a change in one variable (such as price) affects another variable (such as quantity demanded or supplied). It shows whether an increase in price results in a large or small decrease in quantity demanded (or whether a decrease in price results in a large or small increase in quantity demanded) and helps to determine the sensitivity of consumers or producers to changes in price.

Question 13

Economists use the percentage change in quantity rather than the absolute change in quantity for elasticity calculations because:
A) percentage changes are easier to calculate than absolute changes.
B) elasticity measurements come out the same when using percentage changes regardless of the unit of measurement used for quantity.
C) absolute changes in quantity are difficult to convert to changes in price.
D) absolute changes often result in negative numbers.

Accepted Answer

Elasticity measurements need to be independent of the units of measurement used for quantity, which is achieved by using the percentage changes in quantity. Absolute changes in quantity cannot be used as they depend on the units of measurement used.

Question 14

The most commonly used measures of elasticity are:
A) income elasticity of demand and price elasticity of supply.
B) price elasticity of demand and price elasticity of supply.
C) cross-price elasticity of demand and cross-price elasticity of supply.
D) price elasticity of demand and cross-price elasticity of supply.

Accepted Answer

The most commonly used measures of elasticity in economics are price elasticity of demand and price elasticity of supply. Price elasticity of demand measures the responsiveness of quantity demanded to changes in the price of the good, while price elasticity of supply measures the responsiveness of quantity supplied to changes in the price of the good. These measures are important for understanding market behavior, consumer and producer behavior, and government policy. While income elasticity of demand and cross-price elasticity of demand are also useful measures, they are not as commonly used as price elasticity of demand and supply.

Question 15

Suppose a decrease in price increases quantity demanded from 8 to 12 units. Using the mid-point formula, what is the percentage change in quantity demanded?
A) 0.1 = 10 percent
B) 40 = 400 percent
C) 0.40 = 40 percent
D) −0.40 = −40 percent

Accepted Answer

The midpoint formula for calculating the percentage change in quantity demanded is:
(Change in Quantity Demanded / Average Quantity Demanded) x100%

Using the information given:
Change in Quantity Demanded = 12 - 8 = 4
Average Quantity Demanded = (8 + 12) / 2 = 10

Plugging in these values:
(4 / 10) x100% = 40%

Therefore, the percentage change in quantity demanded is 40%, making option C the correct answer.

Question 16

If a good has an elastic demand, then:
A) a small percentage change in price will cause a larger percentage change in quantity demanded.
B) a small percentage change in price will cause virtually no change in quantity demanded.
C) a large percentage change in price will cause a smaller change in quantity demanded.
D) any percentage change in price will cause an almost immediate response in quantity demanded.

Accepted Answer

Elastic demand means that consumers are very responsive to changes in price. As a result, a small percentage change in price will cause a larger percentage change in quantity demanded. This is the opposite of an inelastic demand where consumers are not very responsive to changes in price, and so a large percentage change in price will cause only a small change in quantity demanded.

Question 17

If a large percentage change in price leads to a smaller percentage change in quantity demanded, the good has a
A) very elastic demand.
B) less elastic demand.
C) low magnitude of response.
D) high magnitude of response.

Accepted Answer

A smaller percentage change in quantity demanded indicates that consumers are not particularly sensitive to changes in price, suggesting that the good has a less elastic demand.

Question 18

How does price elasticity of demand appear when calculated?
A) It is always a negative number, although it is sometimes reported as an absolute value.
B) It is sometimes a negative number and sometimes a positive number, depending on the magnitude of response.
C) It is always a positive number because price and quantity are directly related in terms of demand.
D) It can be a positive number or a negative number, but is always reported as an absolute value.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Since an increase in price typically leads to a decrease in quantity demanded (and vice versa), the elasticity is usually negative. However, it is often reported as an absolute value to focus on the magnitude of the response rather than the direction.

Question 19

The concept of price elasticity can be applied to:
A) demand, but not supply.
B) supply, but not demand.
C) both supply and demand.
D) neither supply nor demand.

Accepted Answer

Price elasticity applies to both supply and demand. It measures the responsiveness of quantity demanded or supplied to a change in price. If the price elasticity of demand is high, it indicates that a small change in price will cause a large change in quantity demanded. If the price elasticity of supply is high, it indicates that a small change in price will cause a large change in quantity supplied.

Question 20

Mathematically, price elasticity of demand is the percentage change in the _____ of a good divided by the percentage change in the _____ of that good.
A) quantity demanded; price
B) price; quantity
C) quantity; price

Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. Therefore, the percentage change in the quantity demanded is divided by the percentage change in the price. This gives the price elasticity of demand, which indicates how sensitive consumers are to changes in the price of a good.

Quiz 4: Elasticity

Why do producers calculate the price elasticity of demand for their goods and services?

Economists typically use the mid-point method of calculating elasticity because:

Suppose the price elasticity of demand for eggs is −0.27. Thus, −0.27 is:

What does price elasticity measure?

Suppose a one percent change in the price of oil causes a −0.02 percent change in the quantity demanded of oil. Thus, −0.02 is the:

If consumers' buying decisions are not very sensitive to changes in price, then their demand is:

If a small percentage change in price causes a larger percentage change in the quantity demanded, the good has:

The mid-point method of calculating price elasticity of demand measures the _ changes in quantity demanded and price relative to a point midway between _.

Measurements of elasticity include:

Consider the demand curve in the graph shown. What is the price elasticity of demand between a price of $4 and $6?

Elasticities are used to measure responses to a change in:

If supply and demand analysis is a measure of how, then elasticity is a measure of:

Economists use the percentage change in quantity rather than the absolute change in quantity for elasticity calculations because:

The most commonly used measures of elasticity are:

Suppose a decrease in price increases quantity demanded from 8 to 12 units. Using the mid-point formula, what is the percentage change in quantity demanded?

If a good has an elastic demand, then:

If a large percentage change in price leads to a smaller percentage change in quantity demanded, the good has a

How does price elasticity of demand appear when calculated?

The concept of price elasticity can be applied to:

Mathematically, price elasticity of demand is the percentage change in the _ of a good divided by the percentage change in the _ of that good.