Question 1

The formal definition of price elasticity of demand is
A) change in quantity demanded divided by change in price.
B) quantity demanded divided by price.
C) percentage change in quantity demanded divided by percentage change in price.
D) quantity demanded multiplied by price and divided by 100.

Accepted Answer

Price elasticity of demand is calculated by taking the percentage change in quantity demanded and dividing it by the percentage change in price. This ratio gives us the measure of how responsive quantity demanded is to changes in price. Therefore, option C is the correct definition of price elasticity of demand.

Question 2

If the absolute price elasticity of demand is 2.0, a 5 percent decrease in price will increase quantity demanded by
A) 10 percent.
B) 20 percent.
C) 25 percent.
D) 5 percent.

Accepted Answer

The absolute price elasticity of demand is 2.0, meaning a 1% decrease in price leads to a 2% increase in quantity demanded. Therefore, a 5% decrease in price will increase quantity demanded by 10% (5% * 2 = 10%).

Question 3

When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the absolute price elasticity of demand for soft drinks was approximately equal to
A) 0.15.
B) 0.60.
C) 0.73.
D) 1.67.

Accepted Answer

The formula for calculating the absolute price elasticity of demand is:

% change in quantity demanded / % change in price

Using the information provided in the question, we can calculate the % change in quantity demanded and % change in price:

% change in quantity demanded = (85 - 100) / 100 = -0.15 = -15%

% change in price = (0.75 - 0.60) / 0.60 = 0.25 = 25%

Now, we can calculate the absolute price elasticity of demand:

Absolute price elasticity of demand = |-15% / 25%| = 0.6

Therefore, the best choice is C, 0.73, as it is closest to the calculated value of 0.6.

Question 4

Six months ago, the price of gasoline was $2.20 per gallon. Now, the price is $2.40 per gallon. In response to this price increase, the number of gallons of gasoline purchased has declined by 2 percent. Based on this information, what is the absolute price elasticity of demand for gasoline?
A) 4.35
B) 1.20
C) 0.23
D) 0.10

Accepted Answer

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

Percentage change in price = [(New price - Old price) / Old price] x 100
= [(2.40 - 2.20) / 2.20] x 100
= 9.09%

Percentage change in quantity demanded = -2% (decline)

Absolute price elasticity of demand = (2%/-9.09%) = 0.23

Therefore, the answer is C.

Question 5

If the absolute price elasticity of demand for good Y is 0.75, when there is a 30 percent increase in price, we can conclude that quantity demanded
A) has fallen by 35.0 percent.
B) has fallen by 10.4 percent.
C) has fallen by 22.5 percent.
D) has fallen by 40.0 percent.

Accepted Answer

Using the formula for price elasticity of demand:

E = (% change in quantity demanded) / (% change in price)

We can rearrange it to solve for the % change in quantity demanded:

% change in quantity demanded = E x % change in price

Plugging in the given values:

0.75 = (% change in quantity demanded) / 0.30

% change in quantity demanded = 0.75 x 0.30 = 0.225 or 22.5%

Therefore, the quantity demanded has fallen by 22.5% with a 30% increase in price. The answer is C.

Question 6

An absolute price elasticity of demand equal to 0.4 indicates that a
A) 4 percent increase in price leads to a 10 percent decrease in quantity demanded.
B) 1 percent increase in price leads to a 4 percent decrease in quantity demanded.
C) 0.4 percent decrease in price leads to a 1 percent increase in quantity demanded.
D) 10 percent decrease in price leads to a 4 percent increase in quantity demanded.

Accepted Answer

The answer of An absolute price elasticity of demand equal...

Question 7

The price elasticity of demand is a measure of
A) the responsiveness of the quantity demanded of a good to a changes in the price of the good.
B) the quantity demanded of a good at a given price.
C) the demand for a product holding prices constant.
D) the horizontal shift in the demand curve when the price of a good changes.

Accepted Answer

The price elasticity of demand measures the responsiveness of the quantity demanded of a good to changes in the price of the good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. This measure determines whether a product is a luxury or a necessity and whether a price increase or decrease will have a significant impact on the quantity demanded.

Question 8

The price elasticity of demand measures
A) the consumers' sensitivity to a price change.
B) the producers' sensitivity to a price change.
C) how much the market price changes in response to a change in demand.
D) how much the demand changes in response to a change in income.

Accepted Answer

The price elasticity of demand measures the responsiveness of consumers to a change in price. It indicates whether a small change in price will cause a significant change in the quantity of the good or service demanded by consumers. Therefore, option A is the correct answer as it correctly describes the price elasticity of demand.

Question 9

Which of the following statements about demand and price elasticity of demand is TRUE?
A) As the demand curve has a positive slope, the price elasticity of demand is positive.
B) As the demand curve has a negative slope, the price elasticity of demand is negative.
C) As the demand curve has a positive slope, the price elasticity of demand is negative.
D) As the demand curve has a negative slope, the price elasticity of demand is positive.

Accepted Answer

The demand curve typically has a negative slope, indicating that as the price decreases, the quantity demanded increases, and vice versa. The price elasticity of demand measures the responsiveness of quantity demanded to a change in price, and because the demand curve slopes downward, this elasticity is negative, reflecting an inverse relationship between price and quantity demanded.

Question 10

Suppose that when the price of milk rises 20%, the quantity demanded of milk falls 10%. Based on this information, what is the approximate absolute price elasticity of demand for milk?
A) 0.05
B) 0.2
C) 0.5
D) 2.0

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 10% / 20% = 0.5.

Question 11

The local baseball stadium's concession stands previously sold hot dogs for 80 cents apiece. At that price, when a baseball fan went to watch a baseball game, he bought 2 hotdogs. But now that the stadium has a "dime-a-dog night," he has purchased 6 hot dogs. What is the approximate value of this individual's absolute price elasticity of demand for hot dogs?
A) 0.64
B) 0.80
C) 1.00
D) 1.56

Accepted Answer

The answer of The local baseball stadium's concession stands previously...

Question 12

A good's price elasticity of demand can be calculated by using the formula of
A) percentage change in price divided by percentage change in quantity demanded.
B) percentage change in quantity demanded divided by percentage change in price.
C) percentage change in price divided by percentage change in income.
D) absolute change in quantity demanded divided by absolute change in price.

Accepted Answer

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price, which measures how much the quantity demanded of a good responds to a change in the price of that good.

Question 13

Suppose the quantity demanded of ice cream cones increases from 400 to 425 cones a day when the price is reduced from $1.50 to $1.25. In this situation, the elasticity of demand, calculated using the average method, is
A) 3.
B) 1.
C) 0.33.
D) 1.33.

Accepted Answer

The answer of Suppose the quantity demanded of ice cream...

Question 14

Even though price elasticity of demand is always ________, by convention its absolute value is always discussed as a ________.
A) negative; prime number
B) positive; negative number
C) a fraction; whole number
D) negative; positive number

Accepted Answer

Price elasticity of demand is always negative, as there is an inverse relationship between price and quantity demanded. However, by convention, the absolute value of price elasticity is discussed, meaning that only the magnitude (or size) is considered, without any positive or negative sign. Therefore, the answer is D, as it correctly reflects that the price elasticity is negative but its absolute value is discussed as a positive number.

Question 15

The price elasticity of demand shows
A) the relationship between market price and household income.
B) the proportionate amount by which the quantity demanded changes in response to a proportionate change in price.
C) the quantity demanded at a given price.
D) the proportionate amount by which the price changes in response to a proportionate change in quantity demanded.

Accepted Answer

The price elasticity of demand measures the sensitivity of quantity demanded to changes in price. Specifically, it measures the proportionate change in quantity demanded in response to a proportionate change in price. Therefore, option B is the correct answer. Options A, C, and D do not accurately describe the concept of price elasticity of demand.

Question 16

A 2 percent rise in the price of a good leads to a 2 percent decrease in quantity demanded. The absolute price elasticity of demand is
A) 5.
B) 10.
C) 0.1.
D) 1.0.

Accepted Answer

The absolute price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, both are 2%, so the elasticity is 1.0.

Question 17

When economists want to obtain a measure of the responsiveness of quantity demanded to changes in price, they use
A) the slope of the demand curve.
B) the price elasticity of demand.
C) only the percentage change in quantity demanded.
D) the cross-price elasticity of demand.

Accepted Answer

The price elasticity of demand is the measure of the responsiveness of quantity demanded to changes in price. It takes into account both the percentage change in price and the percentage change in quantity demanded. The slope of the demand curve only indicates the direction of the relationship between price and quantity demanded. The percentage change in quantity demanded alone does not provide enough information to measure responsiveness, and cross-price elasticity of demand measures how the demand for one product responds to changes in the price of another product.

Question 18

The price elasticity of demand is
A) always positive, so there is no reason to consider the absolute value of the price elasticity of demand.
B) always negative, but by convention, economists typically express the price elasticity of demand as an absolute value.
C) always equal to -1, which by convention economists typically express as an absolute value, or 1.
D) always equal to zero, so there is no reason to consider the absolute value of the price elasticity of demand.

Accepted Answer

The price elasticity of demand is always negative as the price and quantity demanded move in opposite directions. However, economists typically express it as an absolute value for ease of interpretation and comparison across products.

Question 19

If price decreases by 10 percent and quantity demanded increases by 30 percent, the price elasticity of demand will be
A) 0.333.
B) 3.
C) 30.
D) 300.

Accepted Answer

The price elasticity of demand can be calculated as: 
% change in quantity demanded / % change in price
In this case, the price decreased by 10%, so the % change in price is -10%. The quantity demanded increased by 30%, so the % change in quantity demanded is 30%. 
Therefore, the price elasticity of demand is:
30% / -10% = -3
But since we are only interested in the absolute value of the elasticity, the answer is 3.

Question 20

If the price elasticity of demand for good A is -1, then a 1% increase in
A) consumer income will result in a 1% decrease in the demand for good A.
B) consumer income will result in a 1% increase in the demand for good A.
C) the market price of good A will result in a 1% increase in the quantity demanded of good A .
D) the market price of good A will result in a 1% decrease in the quantity demanded of good A .

Accepted Answer

Price elasticity of demand of -1 indicates that a 1% increase in price leads to a 1% decrease in quantity demanded.

Quiz 19: Demand and Supply Elasticity

The formal definition of price elasticity of demand is

If the absolute price elasticity of demand is 2.0, a 5 percent decrease in price will increase quantity demanded by

When the price of a soft drink from the campus vending machine was $0.60 per can, 100 cans were sold each day. After the price increased to $0.75 per can, sales dropped to 85 cans per day. Over this range, the absolute price elasticity of demand for soft drinks was approximately equal to

Six months ago, the price of gasoline was $2.20 per gallon. Now, the price is $2.40 per gallon. In response to this price increase, the number of gallons of gasoline purchased has declined by 2 percent. Based on this information, what is the absolute price elasticity of demand for gasoline?

If the absolute price elasticity of demand for good Y is 0.75, when there is a 30 percent increase in price, we can conclude that quantity demanded

An absolute price elasticity of demand equal to 0.4 indicates that a

The price elasticity of demand is a measure of

The price elasticity of demand measures

Which of the following statements about demand and price elasticity of demand is TRUE?

Suppose that when the price of milk rises 20%, the quantity demanded of milk falls 10%. Based on this information, what is the approximate absolute price elasticity of demand for milk?

A good's price elasticity of demand can be calculated by using the formula of

Suppose the quantity demanded of ice cream cones increases from 400 to 425 cones a day when the price is reduced from $1.50 to $1.25. In this situation, the elasticity of demand, calculated using the average method, is

Even though price elasticity of demand is always , by convention its absolute value is always discussed as a .

The price elasticity of demand shows

A 2 percent rise in the price of a good leads to a 2 percent decrease in quantity demanded. The absolute price elasticity of demand is

When economists want to obtain a measure of the responsiveness of quantity demanded to changes in price, they use

The price elasticity of demand is

If price decreases by 10 percent and quantity demanded increases by 30 percent, the price elasticity of demand will be

If the price elasticity of demand for good A is -1, then a 1% increase in