Question 1

Which of the following statements about the price elasticity of demand is correct?
A) The elasticity of demand for a good in general is equal to the elasticity of demand for a specific brand of the good.
B) The absolute value of the elasticity of demand ranges from zero to one.
C) Demand is more elastic in the long run than it is in the short run.
D) Demand is more elastic the smaller the percentage of the consumer's budget the item takes up.

Accepted Answer

In the long run, consumers have more time to adjust their behavior and find substitutes for goods, making demand more elastic. A, B, and D are incorrect because elasticity of demand can vary based on the specific brand, the absolute value of elasticity can range from zero to infinity, and the percentage of the consumer's budget can affect elasticity but not necessarily make it more elastic.

Question 2

Which of the following products comes closest to having a perfectly inelastic demand?
A) gasoline
B) cholesterol medication in general
C) iPhones
D) bus rides

Accepted Answer

The answer of Which of the following products comes closest...

Question 3

Suppose the price of gasoline in July 2004 averaged $1.35 a gallon and 15 million gallons a day were sold. In October 2004, the price averaged $2.15 a gallon and 14 million gallons were sold. If the demand for gasoline did not shift between these two months, use the midpoint formula to calculate the price elasticity of demand. Indicate whether demand was elastic or inelastic.

Accepted Answer

The answer of Suppose the price of gasoline in July...

Question 4

Briefly explain the economic concept of elasticity.

Accepted Answer

The answer of Briefly explain the economic concept of elasticity....

Question 5

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price.

Accepted Answer

When demand is elastic, a small change in price will lead to a proportionately larger change in the quantity demanded. This means that the percentage change in quantity demanded is greater than the percentage change in price.

Question 6

When is demand perfectly elastic? When is demand perfectly inelastic? What are the values of the price elasticity of demand when demand is perfectly elastic or perfectly inelastic? What do perfectly elastic and perfectly inelastic demand curves look like?

Accepted Answer

The answer of When is demand perfectly elastic? When is...

Question 7

Suppose that when the price per ream of recycled printer paper rises from $4 to $4.50, the quantity demanded falls from 800 to 600 reams per day. Using the midpoint formula, what is the price elasticity of demand (in absolute value) over this range?
A) 0.003
B) 0.41
C) 2.43
D) 4

Accepted Answer

Midpoint formula:
Elasticity = [(Q2 - Q1)/((Q1 + Q2)/2)] / [(P2 - P1)/((P1 + P2)/2)]
Elasticity = [(600-800)/((600+800)/2)] / [(4.50-4)/((4.50+4)/2)] 
Elasticity = [-200/700] / [0.50/4.25]
Elasticity = -0.286 / 0.118
Elasticity = 2.43
So, the price elasticity of demand is 2.43.

Question 8

What does price elasticity of demand measure? When is demand elastic? Inelastic? Unit elastic?

Accepted Answer

The answer of What does price elasticity of demand measure?...

Question 9

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Accepted Answer

Although there is a high demand for gasoline, the demand is not perfectly inelastic as consumers do have some ability to reduce their consumption through carpooling or using public transportation. Additionally, consumers may switch to more fuel-efficient vehicles if the price of gasoline increases significantly.

Question 10

Suppose at a price of $50, Yoshi's Jazz Bar sells 20 tickets to its nightly jazz performance and at a price of $40, it sells 25 tickets. Based on this information, the demand for Yoshi's jazz performance is elastic.

Accepted Answer

The answer of Suppose at a price of $50, Yoshi's...

Question 11

The current price of canvas messenger bags is $36 each and sales of the bags equal 400 per week. If the price elasticity of demand is -2.5 and the price changes to $44, how many messenger bags will be sold per week? Use the midpoint formula.

Accepted Answer

The answer of The current price of canvas messenger bags...

Question 12

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following: "As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year. . . . And ice cream consumption is down 3 percent."
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001.
Based on the information given, what is the price elasticity of demand for ice cream?
A) 0.75 (in absolute value)
B) 1.33 (in absolute value)
C) 12%
D) We do not have enough information to calculate the elasticity.

Accepted Answer

The answer of A newspaper story on the effect of...

Question 13

The U.S. government's focus on supply reduction efforts in its "war on drugs" has been relatively unsuccessful at addressing illegal drug use. Some economists believe that a successful anti-drug program must concentrate on reducing demand; for example, through drug education and voluntary treatment programs for addicts.
a. Suppose the price elasticity of demand for cocaine is -0.5. What will happen to the equilibrium price, quantity and total revenue from cocaine sales if the government succeeds in its efforts to reduce demand? What is likely to happen to the incentive to sell cocaine?
b. Suppose the government continues to concentrate its efforts on supply reduction and is able to reduce the supply of cocaine. As a result of the reduction in supply the price of cocaine increases by 25 percent. If the price elasticity of demand is -0.5, what is likely to happen to the incentive to sell cocaine?
c. Based on your answers, explain why one approach might be preferred over the other.

Accepted Answer

The answer of The U.S. government's focus on supply reduction...

Question 14

Jonah lives in a small town where there is only one Mexican restaurant. Which of the following is likely to be true about the price elasticity of demand for meals at the Mexican restaurant?
A) Demand is likely to be perfectly inelastic.
B) Demand is likely to be perfectly elastic.
C) Demand is likely to be relatively elastic.
D) Demand is likely to be relatively inelastic.

Accepted Answer

Because there is only one Mexican restaurant in the town, consumers have limited options for purchasing similar products. This makes demand for meals at the restaurant relatively inelastic, as consumers are more likely to continue purchasing meals even if the price increases.

Question 15

If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded.

Accepted Answer

The answer of If the absolute value of the price...

Question 16

If demand is inelastic, the absolute value of the price elasticity coefficient is greater than one.

Accepted Answer

If demand is inelastic, the absolute value of the price elasticity coefficient is less than one.

Question 17

When there are few close substitutes available for a good, demand tends to be
A) perfectly inelastic.
B) perfectly elastic.
C) relatively inelastic.
D) relatively elastic.

Accepted Answer

When there are few close substitutes available for a good, consumers have fewer alternatives to switch to if the price changes, making the demand relatively inelastic.

Question 18

If the demand for a product is elastic, the quantity demanded changes by a smaller percentage than the percentage change in price.

Accepted Answer

If the demand for a product is elastic, the quantity demanded changes by a larger percentage than the percentage change in price. This means that a small increase in price can lead to a significant decrease in the quantity demanded, while a small decrease in price can lead to a significant increase in the quantity demanded.

Question 19

If, when price changes by 35 percent, the quantity demanded changes by 7 percent, then the absolute value of the price elasticity of demand is 5.

Accepted Answer

The absolute value of the price elasticity of demand in this case should be calculated as (percentage change in quantity demanded) / (percentage change in price).

Substituting the given values, we get:

Price elasticity of demand = 7% / 35%

Price elasticity of demand = 0.2

Therefore, the absolute value of the price elasticity of demand is 0.2, which is not equal to 5. Hence, the statement is false.

Question 20

If at a price of $10, a vendor sells 5 units of a product and at a price of $8, 6 units are sold, then, using the midpoint formula, the demand for this good is inelastic.

Accepted Answer

The midpoint formula is used to calculate the price elasticity of demand, which measures the responsiveness of quantity demanded to changes in price. If the result of the calculation is less than 1, the demand is considered inelastic, meaning that changes in price have a relatively small effect on the quantity demanded.

Using the midpoint formula with the given information, we get:

Price elasticity of demand = ((6-5)/((6+5)/2)) / ((8-10)/((8+10)/2))
= (1/5.5) / (-2/9) = -0.327

Since the result is less than 1, the demand for this good is inelastic. Therefore, the answer is A.

Quiz 6: Elasticity: the Responsiveness of Demand and Supply

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

Which of the following products comes closest to having a perfectly inelastic demand?