Question 1

If demand price elasticity measures 2, this implies that consumers would

Accepted Answer

A demand price elasticity of 2 means that for every 1 percent drop in price, quantity demanded increases by 2 percent. Therefore, if the price drops by 10 percent, consumers would be expected to increase their purchases by 20 percent (2 x 10). Thus, choice C is the best option given.

Question 2

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

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Question 3

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

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Question 4

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is -.25, by how much would you have to raise the price of water?

Accepted Answer

The formula for price elasticity of demand is:
Price elasticity of demand = (Percent change in quantity demanded) / (Percent change in price)

Since the price elasticity of demand for water is -.25, we know that a 1% increase in the price of water will lead to a 0.25% decrease in the quantity of water demanded.

To achieve a 10% reduction in water consumption, we need to increase the price of water by enough to cause a 40% decrease in the quantity of water demanded. This is because:
(0.25% decrease in quantity demanded) x (X% increase in price) = 10% decrease in water consumption
X = 40%

Question 5

If the quantity of oranges purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the price elasticity of demand for oranges is

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, we know that the percentage change in quantity demanded is -30% and the percentage change in price is +15%. Therefore, the price elasticity of demand can be calculated as:

E = -30% / (+15%) = -2

Since the elasticity is greater than 1, demand for oranges is considered to be elastic. A 15% increase in price led to a 30% decrease in quantity demanded, which indicates that consumers are highly responsive to changes in price.

Question 6

A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent. Over this range, the absolute value of the price elasticity of demand was

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Question 7

The price of product X increases from $35 to $40, and as a result, the quantity demanded decreases from 250 to 200. Over this price range,

Accepted Answer

The calculation of price elasticity of demand (PED) is (% change in quantity demanded / % change in price). Using the values given, we get: 
PED = ((200-250)/((200+250)/2)) / ((40-35)/((40+35)/2)) = -0.714
Since the absolute value of PED is greater than 1, demand is elastic.

Question 8

If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent, and the quantity sold declines by 8 percent as a result, the price elasticity of demand for cigarettes is equal to

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Question 9

If the quantity demanded of a product fell from 11,000 to 10,000 when price rose from $9 to $10, the price elasticity of demand over this range is equal to approximately

Accepted Answer

Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price.

PED formula: % change in quantity demanded / % change in price

% change in quantity demanded = (new quantity demanded - original quantity demanded) / original quantity demanded * 100% = (10,000 - 11,000) / 11,000 * 100% = -9.09%

% change in price = (new price - original price) / original price * 100% = ($10 - $9) / $9 * 100% = 11.11%

PED = -9.09% / 11.11% ≈ -0.82

Since the absolute value of PED is greater than 1, the demand for this product is price elastic.

Therefore, the closest choice to the calculated PED is C)-0.9.

Question 10

As people have more time to adjust to a price change,

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Question 11

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

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Question 12

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a

Accepted Answer

A price elasticity of demand of 4.5 means that a 1% increase in price will result in a 4.5% decrease in quantity demanded. Therefore, a 10% increase in price would be expected to cause a 45% decrease in quantity demanded.

Question 13

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

Accepted Answer

If the price increase of 10% caused a 15% decline in attendance, this indicates that the demand for tickets is sensitive to changes in price, and therefore, demand is elastic.

Question 14

If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased, the price elasticity of demand for the tickets is

Accepted Answer

We can use the price elasticity of demand formula to calculate the answer:

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

We are given that the price of airline tickets decreased by 20%, which means the % change in price is -20%. We are also given that the quantity of tickets purchased increased by 50%, which means the % change in quantity demanded is 50%.

Plugging these values into the formula, we get:

Price Elasticity of Demand = 50% / -20%
Price Elasticity of Demand = -2.5

Therefore, the price elasticity of demand for the tickets is -2.5.

Question 15

A recent increase in the supply of oranges caused the price to drop from $5 to $3 per bushel, and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is

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Question 16

If a demand curve for a good were completely vertical, it would be considered

Accepted Answer

A completely vertical demand curve indicates that no matter what the price of the good is, the quantity demanded will remain the same. This means that the demand for the good is completely unaffected by changes in price, making it perfectly inelastic.

Question 17

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as

Accepted Answer

When the percentage change in quantity demanded is greater than the percentage change in price, demand is considered relatively elastic. In this case, a 20% increase in quantity demanded in response to a 10% decrease in price indicates that demand is relatively elastic.

Question 18

A local Krispy Kreme doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was

Accepted Answer

The decrease in price of doughnuts led to a significant increase in sales, indicating that consumers are price sensitive and therefore responsive to changes in price. This means that the price elasticity of demand for the doughnuts is elastic.

Question 19

When the price of designer jeans goes from $85 to $60, the quantity demanded increases from 100,000 to 120,000. Over this price range, the

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Question 20

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

Accepted Answer

We can use the midpoint formula to calculate the price elasticity of demand:

% change in quantity demanded = ((450-350)/((450+350)/2)) * 100% = 28.57%
% change in price = ((1.80-2.20)/((1.80+2.20)/2)) * 100% = -18.18%

Price elasticity of demand = % change in quantity demanded / % change in price = 28.57% / (-18.18%) = -1.57

Since we want the absolute value of the elasticity, we have: | -1.57 | = 1.57, which is closest to choice C, 1.25. Therefore, the absolute value of the price elasticity of demand for Starbucks coffee is approximately 1.25.

Quiz 20: Consumer Choice and Elasticity