Question 1

Which statement is TRUE?
A) Elasticity of demand attempts to measure how fast quantity demanded increases when price increases.
B) If the elasticity of demand is -4, then economists know that the price is increasing at a faster rate than quantity demanded.
C) The price elasticity of demand is always a negative number, but economists generally ignore the negative sign.
D) The elasticity of demand is always the same as the elasticity of supply.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, typically resulting in a negative value because price and quantity demanded usually move in opposite directions. Economists often ignore the negative sign when discussing elasticity, focusing instead on the magnitude of the response.

Question 2

Knowing a product's price elasticity of demand allows economists to predict
A) the amount by which quantity demanded will change in response to a change in price.
B) how changes in consumers' income will affect sales.
C) the amount by which quantity supplied will change in response to a change in price.
D) how quickly consumers will respond to tariff changes.

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price. It does not directly relate to changes in consumers' income, quantity supplied, or responses to tariffs.

Question 3

Price elasticity of demand is a measure of how responsive a change in quantity demanded is to a change in
A) price.
B) consumer preferences.
C) supply.
D) interest rates.

Accepted Answer

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price, not to changes in consumer preferences, supply, or interest rates.

Question 4

One practical reason that economists use percentages to measure elasticity is to
A) predict consumer preferences.
B) compare characteristics of unrelated products.
C) convert units to the metric system.
D) convert elasticities into dollars.

Accepted Answer

Percentages allow economists to compare the responsiveness of demand or supply of different goods or services, regardless of their units of measurement, making comparisons between unrelated products possible and meaningful.

Question 5

Measuring elasticities in percentage terms allows us to
A) compare the sensitivity of demand curves.
B) compare characteristics of unrelated products.
C) not worry about the magnitudes of changes.
D) compare the sensitivity of demand curves, compare characteristics of unrelated products, and not worry about the magnitudes of changes.

Accepted Answer

Measuring elasticities in percentage terms allows for comparison across different goods and demand curves without concern for the absolute sizes of changes, making comparisons more meaningful and universal. This approach facilitates the comparison of how sensitive demand is for different products (regardless of their nature or scale) and eliminates the need to consider the specific units or magnitudes of changes involved.

Question 6

The more responsive buyers are to a change in price, the
A) greater the price elasticity of supply.
B) closer the price elasticity of demand is to one.
C) greater the price elasticity of demand.
D) smaller the price elasticity of demand.

Accepted Answer

The more responsive buyers are to a change in price, the greater the price elasticity of demand. This means that a small change in price leads to a large change in the quantity demanded.

Question 7

A demand curve that is elastic
A) implies that buyers are very sensitive to price changes.
B) has an elasticity value of zero.
C) has a positive slope.
D) has an elasticity value less than one.

Accepted Answer

An elastic demand curve implies that buyers are very sensitive to price changes, meaning a small change in price leads to a large change in the quantity demanded.

Question 8

If E_d = 4, then A) a price increase of 1% will reduce quantity demanded by 4%. B) a price increase of 1% will increase quantity demanded by 4%. C) a price decrease of 1% will decrease quantity demand by 4%. D) the slope of the demand curve is equal to 4.

Accepted Answer

The given expression E_d = 4 represents the price elasticity of demand, which measures how much the quantity demanded of a good responds to a change in the price of that good. A value of 4 indicates that a 1% increase in price will lead to a 4% decrease in quantity demanded, making option A correct.

Question 9

If a product's price rises by 6% and its quantity demanded falls by 8%, then we can say that demand for this product is
A) perfectly inelastic.
B) inelastic.
C) unitary elastic.
D) elastic.

Accepted Answer

The demand is considered elastic when the percentage change in quantity demanded is greater than the percentage change in price, which is the case here (8% decrease in quantity demanded with a 6% increase in price).

Question 10

If a product's price rises by 6% and its quantity demanded falls by 8%, then its elasticity is equal to
A) 0.75.
B) 1.33.
C) 2.00.
D) 6.00.

Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is (-8% / 6%) = -1.33. The negative sign indicates the inverse relationship between price and quantity demanded, but elasticity is often reported in absolute value, making the correct answer 1.33.

Question 11

Walmart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is 2, then the discount would increase sales by
A) 12.5%.
B) 200%.
C) 50%.
D) 25%.

Accepted Answer

The elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. Here, with an elasticity of 2 and a price decrease of 25%, the increase in sales would be 2 * 25% = 50%.

Question 12

If a 1% increase in the price of gummy bears causes gummy bear sales to decline by 0.4%, then the price elasticity of demand is
A) 2.5.
B) 0.04.
C) 0.4.
D) 4.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is -0.4% / 1% = -0.4. The negative sign indicates the inverse relationship between price and quantity demanded, but the magnitude (0.4) is what's typically reported for elasticity.

Question 13

A grocery store announced a 50% decrease in the price of local honey. Sales increased by 200%. Based on the information, the price elasticity of honey is
A) 0.25.
B) 0.04.
C) 0.4.
D) 4.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the quantity demanded increased by 200% and the price decreased by 50%. So, the price elasticity of demand = (200% / 50%) = 4.

Question 14

If price increases by 100% and quantity demanded decreases by 50%, then the price elasticity of demand is equal to
A) 0.4.
B) 2.0.
C) 0.5.
D) 20.0.

Accepted Answer

The answer of If price increases by 100% and quantity...

Question 15

If the price elasticity of demand is 0.1, then for every 10% increase in price, there is a _____ in quantity demanded.
A) 100% increase
B) 100% decrease
C) 1% increase
D) 1% decrease

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. A price elasticity of 0.1 means that for every 1% increase in price, the quantity demanded decreases by 0.1%. Therefore, for a 10% increase in price, the quantity demanded decreases by 1%.

Question 16

If the price elasticity of demand is 10, then for every 1% increase in price, there is a _____ in quantity demanded.
A) 10% decrease
B) 10% increase
C) 0.1% increase
D) 0.1% decrease

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. A price elasticity of 10 means that for every 1% increase in price, there is a 10% decrease in quantity demanded.

Question 17

If the price increases by 100% and the quantity demanded decreases by 50%, then the elasticity of demand is
A) 0.5.
B) 2.
C) 1.
D) 5.

Accepted Answer

The answer of If the price increases by 100% and...

Question 18

The price of gold increases by 200%. If the price elasticity of demand for gold is 0.4, what will happen in the market?
A) Gold sales will increase by 1,000%.
B) Gold sales will decrease by 40%.
C) Gold sales will decrease by 5%.
D) Gold sales will decrease by 80%.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. With a price elasticity of 0.4 and a 200% increase in price, the quantity demanded will decrease by 0.4 * 200% = 80%.

Question 19

If quantity demanded rises by 60% and price falls by 20%, the price elasticity of demand is
A) 3.
B) 20.
C) 60.
D) 0.33.

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 (60%/20%) = 3.

Question 20

In comparing the change in prices of different items, it is preferable to
A) compare the percentage changes in the prices.
B) compare the prices of the items directly.
C) analyze the main causes of the price changes.
D) include historical trends of the prices.

Accepted Answer

Comparing the percentage changes in prices allows for a standardized measure of how much prices have changed relative to their starting points, making it easier to compare changes across different items regardless of their initial price levels.

Quiz 5: Elasticity

Which statement is TRUE?

Knowing a product's price elasticity of demand allows economists to predict

Price elasticity of demand is a measure of how responsive a change in quantity demanded is to a change in

One practical reason that economists use percentages to measure elasticity is to

Measuring elasticities in percentage terms allows us to

The more responsive buyers are to a change in price, the

A demand curve that is elastic

If Ed = 4, then

If a product's price rises by 6% and its quantity demanded falls by 8%, then we can say that demand for this product is

If a product's price rises by 6% and its quantity demanded falls by 8%, then its elasticity is equal to

Walmart is thinking about offering a 25% discount on a brand of shoes. If the elasticity of demand is 2, then the discount would increase sales by

If a 1% increase in the price of gummy bears causes gummy bear sales to decline by 0.4%, then the price elasticity of demand is

A grocery store announced a 50% decrease in the price of local honey. Sales increased by 200%. Based on the information, the price elasticity of honey is

If price increases by 100% and quantity demanded decreases by 50%, then the price elasticity of demand is equal to

If the price elasticity of demand is 0.1, then for every 10% increase in price, there is a _____ in quantity demanded.

If the price elasticity of demand is 10, then for every 1% increase in price, there is a _____ in quantity demanded.

If the price increases by 100% and the quantity demanded decreases by 50%, then the elasticity of demand is

The price of gold increases by 200%. If the price elasticity of demand for gold is 0.4, what will happen in the market?

If quantity demanded rises by 60% and price falls by 20%, the price elasticity of demand is

In comparing the change in prices of different items, it is preferable to

If E_d = 4, then