Question 1

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

Accepted Answer

This is the correct definition of price elasticity of demand.

Question 2

If the cross-price elasticity of demand for two goods is negative, then the two goods are complements.

Accepted Answer

A negative cross-price elasticity of demand indicates that as the price of one good increases, the quantity demanded for the other good decreases. This is generally the case for complementary goods, where an increase in the price of one good leads to a decrease in demand for the other good.

Question 3

The demand for Rice Krispies is less elastic than the demand for cereal in general.

Accepted Answer

False

Question 4

Cross-price elasticity of demand measures how the quantity demanded of one good changes as the price of another good changes.

Accepted Answer

Cross-price elasticity of demand is specifically defined as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. So, it does indeed measure how the quantity demanded of one good changes as the price of another good changes.

Question 5

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is

Accepted Answer

When a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, the demand for that good is price elastic. This means that a small change in price has a significant effect on the quantity demanded, indicating that consumers are sensitive to changes in price.

Question 6

An advance in technology that shifts the market supply curve to the right always increases total revenue received by producers.

Accepted Answer

The answer of An advance in technology that shifts the...

Question 7

If price elasticity of demand for a good is 2.0, this implies that consumers would

Accepted Answer

Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. A PED of 2.0 means that a 1% decrease in price will result in a 2% increase in quantity demanded (and vice versa). Therefore, if the price is cut by 10%, we can expect quantity demanded to increase by 20% (2% x 10). Choice C is the only option that correctly reflects this relationship.

Question 8

In general, a flatter demand curve is more likely to be

Accepted Answer

A flatter demand curve means that a small change in price causes a relatively large change in quantity demanded. This is characteristic of price elasticity, or when a change in price has a significant effect on the quantity demanded. Therefore, the answer is A) price elastic.

Question 9

If a demand curve is linear, the price elasticity of demand is constant along it.

Accepted Answer

The answer of If a demand curve is linear, the...

Question 10

The price elasticity of demand measures the

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good or service changes in response to a change in its price. It provides a numerical value that indicates the sensitivity of buyers to changes in price.

Question 11

Suppose that when the price rises by 10% for a particular good, the quantity demanded of that good falls by 20%. The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

Price elasticity of demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price. 
In this case, we are told that when the price rises by 10%, the quantity demanded falls by 20%. 
So, the percentage change in quantity demanded is -20%/+10% = -2. 
Therefore, PED = -2%/+10% = -2.0. 
Since PED is negative, we know that this is a normal good and its demand is elastic (responsive to changes in price). 
The value of PED being equal to 2.0 confirms this elasticity, as we define elastic demand as having a PED greater than 1.0.

Question 12

The price elasticity of supply tends to be more inelastic as the firm's production facility reaches maximum capacity.

Accepted Answer

As a firm's production facility reaches maximum capacity, it becomes harder and more expensive for the firm to increase production. Therefore, the firm may not be able to respond as quickly to changes in price in the market, making the price elasticity of supply more inelastic.

Question 13

The price elasticity of demand is defined as

Accepted Answer

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price of a good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Thus, choice C is the correct answer.

Question 14

The income elasticity of demand for luxury items, such as diamonds, tends to be large (greater than 1).

Accepted Answer

Luxury items are considered to be non-essential and discretionary goods, so as people's incomes increase, they tend to spend more on these items. Therefore, the demand for luxury items is more responsive to changes in income, resulting in a larger income elasticity of demand (greater than 1).

Question 15

In general, demand curves for luxuries tend to be price elastic.

Accepted Answer

When it comes to luxuries, consumers have more flexibility in their purchasing decisions and are more likely to decrease their quantity demanded in response to a price increase. This makes the demand curve relatively elastic, meaning that changes in price have a greater impact on the quantity demanded.

Question 16

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

The answer of Which of the following statements about the...

Question 17

If the price elasticity of demand within the price range from R10 to R12.50 per kilogram for carrots is 0.79 and for radishes is 1.6, then within that price range

Accepted Answer

The higher price elasticity of demand for radishes (1.6) indicates that demand for radishes is more price-sensitive than that for carrots (0.79) within the given price range. Therefore, option B is the correct answer. Options A, C, and D can be ruled out based on the information given.

Question 18

In general, a steeper supply curve is more likely to be

Accepted Answer

A steeper supply curve indicates that a given change in price results in a proportionally larger change in quantity supplied, which is the definition of price inelasticity. Therefore, the correct answer is D.

Question 19

If SA T-Shirt Co. lowers its price from R60 to R50 and finds that students increase their quantity demanded from 400 to 600 T-shirts per month, then the demand for SA T-shirts within this price range is

Accepted Answer

The decrease in price has resulted in an increase in quantity demanded, indicating that the demand is price elastic. This means that the percentage change in quantity demanded is greater than the percentage change in price.

Question 20

The price elasticity of demand for a good measures the willingness of

Accepted Answer

The price elasticity of demand measures the responsiveness of quantity demanded to changes in price. If the demand for a good is elastic, consumers will be more willing to buy less of the good as price increases, showing a high degree of sensitivity to price changes. Therefore, option A is the correct choice. Option B is incorrect because it pertains to consumer preferences for competitive markets and doesn't relate to the price elasticity of demand. Option C is incorrect because it pertains to the quantity produced by firms, while price elasticity pertains to quantity demanded by consumers. Option D is incorrect because it pertains to the tastes of consumers, which is a different concept from the price elasticity of demand.

Quiz 4: Elasticity and Its Applications