Question 1

The price elasticity of demand can be found by:
A) examining only the slope of the demand curve.
B) measuring absolute changes in price and quantity demanded.
C) comparing the percentage change in quantity demanded to the percentage change in price.
D) knowing that when price changes, quantity demanded goes in the opposite direction.

Accepted Answer

The price elasticity of demand is calculated by comparing the percentage change in quantity demanded to the percentage change in price. This ratio provides a measure of the responsiveness of quantity demanded to changes in price.

Question 2

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:
A) different elasticities, depending on whether price decreases or increases.
B) different elasticities, because price and quantity are inversely related on the demand curve.
C) total revenue when price falls and demand is inelastic.
D) total revenue when price falls and demand is elastic.

Accepted Answer

The midpoint method calculates elasticity using the average of the starting and ending prices and quantities, which provides a consistent elasticity value regardless of whether the price increases or decreases.

Question 3

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.
A) price
B) quantity
C) income
D) cross-price

Accepted Answer

The price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as the ratio of the percentage change in quantity demanded to the percentage change in price.

Question 4

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:
A) greater than zero but less than 1.
B) equal to 1.
C) greater than 1 but less than 3.
D) greater than 3.

Accepted Answer

The answer of A men's tie store sold an average...

Question 5

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:
A) 0.1%.
B) 1%.
C) 5%.
D) 50%.

Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. With an elasticity of 0.1, to achieve a 5% increase in sales, the price must be reduced by 5% / 0.1 = 50%.

Question 6

If the estimated price elasticity of demand for foreign travel is 4:
A) a 20% decrease in the price of foreign travel will increase quantity demanded by 80%.
B) the demand for foreign travel is inelastic.
C) a 10% increase in the price of foreign travel will increase quantity demanded by 40%.
D) a 20% increase in the price of foreign travel will increase quantity demanded by 80%.

Accepted Answer

The formula for price elasticity of demand is % change in quantity demanded / % change in price. If elasticity is 4, a 20% decrease in price will result in a 4 x 20% = 80% increase in quantity demanded.

Question 7

Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:
A) price elastic.
B) price inelastic.
C) price unit-elastic.
D) perfectly price inelastic.

Accepted Answer

The demand for gasoline in Orlando is price inelastic because the percentage change in quantity demanded (5%) is less than the percentage change in price (10%). This indicates that consumers' demand for gasoline does not decrease proportionally with an increase in price, showing inelastic behavior.

Question 8

The price elasticity of demand measures the:
A) responsiveness of quantity demanded to a change in price.
B) responsiveness of price to a change in quantity demanded.
C) extent to which prices are flexible and respond to market forces.
D) responsiveness of demand when price is held constant and demand increases or decreases.

Accepted Answer

The price elasticity of demand is a measure of the responsiveness of the quantity demanded to a change in price. It measures the percentage change in the quantity demanded in response to a percentage change in price. Therefore, option A is the correct choice. The other options are not related to the concept of price elasticity of demand.

Question 9

If the price of a good increases by 15% and quantity demanded changes by 20%, then the price elasticity of demand is equal to:
A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price.

Here, we have:

% change in price = 15%
% change in quantity demanded = 20%

Therefore, price elasticity of demand = % change in quantity demanded / % change in price

= 20% / 15%

= 1.33 (approx.)

So, the answer is choice C.

Question 10

The price elasticity of demand is computed as the percentage change in the _____ divided by the percentage change in _____.
A) quantity demanded; the quantity supplied.
B) price; the quantity demanded.
C) quantity demanded; income.
D) quantity demanded; the price.

Accepted Answer

The price elasticity of demand measures the responsiveness of the quantity demanded of a good or service to a change in its price. Therefore, the percentage change in quantity demanded is divided by the percentage change in the price to obtain the price elasticity of demand.

Question 11

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

Accepted Answer

The price elasticity of demand measures the percentage change in the quantity demanded of a good or service in response to a percentage change in its price. Therefore, the correct choice is A as it directly relates to the responsiveness of quantity demanded to a change in price.

Question 12

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

Accepted Answer

The price elasticity of demand is a measure of the responsiveness of the quantity demanded to a change in price. In other words, it measures the percentage change in quantity demanded for every percentage change in price.

Question 13

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _____, and demand is described as _____.
A) 0.2; inelastic
B) 5; inelastic
C) 0.2; elastic
D) 5; elastic

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which is -1%/5% = -0.2. The negative sign is often ignored when discussing elasticity, so we say the elasticity is 0.2. Because the absolute value of the elasticity is less than 1, demand is described as inelastic.

Question 14

The only producer of chocolate bunnies in the world, Choco's Bunny Company, recently expanded its production capacity from 1,000 to 2,000 bunnies per day. If the price elasticity of demand for bunnies is 3.33, by how much will the company have to reduce its price to sell the additional 1,000 bunnies (by the midpoint method)?
A) 2.5%
B) 25%
C) 125%
D) 20%

Accepted Answer

The answer of The only producer of chocolate bunnies in...

Question 15

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:
A) how much the price goes down.
B) how much the equilibrium price goes up.
C) the responsiveness of the price change to an income change.
D) the responsiveness of the quantity change to the price change.

Accepted Answer

Price elasticity of demand measures the percentage change in quantity demanded due to a percentage change in price. Therefore, it measures the responsiveness of the quantity change to the price change.

Question 16

For a normal demand curve, the price elasticity of demand will be:
A) always positive.
B) always greater than 1.
C) usually equal to 1.
D) always negative.

Accepted Answer

The price elasticity of demand for a normal demand curve is always negative because as price increases, quantity demanded decreases, and vice versa, reflecting the inverse relationship between price and quantity demanded.

Question 17

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:
A) 0.75.
B) approximately 0.33.
C) approximately 1.33.
D) 1.

Accepted Answer

The answer of If the price of a good increases...

Question 18

The price elasticity of demand is measured by _____ the percentage change in _____ the percentage change in _____.
A) dividing; price by; quantity demanded
B) dividing; quantity demanded by; price
C) subtracting; price from; quantity demanded
D) adding; price to; quantity demanded

Accepted Answer

The price elasticity of demand is measured by dividing the percentage change in quantity demanded by the percentage change in price. This formula helps economists determine how sensitive consumers are to changes in price. If the answer is greater than one, it is considered elastic demand, meaning that consumers are very sensitive to changes in price. If the answer is less than one, it is considered inelastic demand, meaning that consumers are not very sensitive to changes in price.

Question 19

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:
A) 1.17.
B) 1.50.
C) 0.85.
D) 1.00.

Accepted Answer

The midpoint method formula for price elasticity of demand is [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(130 - 100) / (130 + 100) / 2] / [(8 - 10) / (8 + 10) / 2] = 30/115 / -2/9 = 0.26 / -0.22 = -1.17 (absolute value is 1.17).

Question 20

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand?
A) 2.5.
B) 1.4.
C) 0.7.
D) 0.5.

Accepted Answer

The answer of The Cozy Chair Company believes it can...

Quiz 6: Elasticity

The price elasticity of demand can be found by:

Use of the midpoint method to calculate the price elasticity of demand eliminates the problem of computing:

The ratio of the percentage change in quantity demanded to the percentage change in price is the _____ elasticity of demand.

A men's tie store sold an average of 30 ties per day at $5 per tie but sold 50 of the same ties per day at $3 per tie. The price elasticity of demand, by the midpoint method, is:

Egg producers know that the elasticity of demand for eggs is 0.1. If they want to increase sales by 5%, they will have to lower price by:

If the estimated price elasticity of demand for foreign travel is 4:

Suppose the price of gasoline increases 10% and quantity of gasoline demanded in Orlando drops 5% per day. Demand for gasoline in Orlando is:

The price elasticity of demand measures the:

If the price of a good increases by 15% and quantity demanded changes by 20%, then the price elasticity of demand is equal to:

The price elasticity of demand is computed as the percentage change in the _ divided by the percentage change in _.

The price elasticity of demand measures the responsiveness of the change in the:

The price elasticity of demand measures the:

The price of gasoline rises 5% and the quantity of gasoline purchased falls 1%. The price elasticity of demand is equal to _, and demand is described as _.

When the price goes down, the quantity demanded goes up. The price elasticity of demand measures:

For a normal demand curve, the price elasticity of demand will be:

If the price of a good increases by 20% and the quantity demanded changes by 15%, then the price elasticity of demand is equal to:

The price elasticity of demand is measured by ___ the percentage change in _ the percentage change in ___.

Suppose at $10 the quantity demanded is 100. When the price falls to $8, the quantity demanded increases to 130. The price elasticity of demand between $10 and $8, by the midpoint method, is approximately:

The Cozy Chair Company believes it can sell 200 chairs at $200 per chair or 300 chairs at $150 per chair. Using the midpoint formula, what do they think is the price elasticity of demand?