Question 1

When the Blue Ocean Surfboard Company lowered the price of surfboards by 20 percent, it sold 10 percent more surfboards. The price elasticity coefficient for surfboards is _____.

Accepted Answer

Price elasticity of demand (PED) can be calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this case, the price decreased by 20% and the quantity demanded increased by 10%, so PED is calculated as 10%/20%, which equals 0.5. Since the PED value is less than 1, it indicates an inelastic demand for the surfboards.

Question 2

The demand for a good is said to be _____ when the percentage change in quantity demanded is greater than the percentage change in price.

Accepted Answer

Inelasticity refers to the situation where the change in price of a good does not have a significant effect on the quantity of the good demanded by consumers. On the other hand, elasticity refers to the situation where the change in price of a good has a significant effect on the quantity of the good demanded by consumers. Therefore, when the percentage change in quantity demanded is greater than the percentage change in price, the demand for the good is said to be elastic.

Question 3

For nondurable goods, _____.

Accepted Answer

In the short run, consumers have less time to adjust their consumption habits for nondurable goods, making the demand curve less elastic. Over time, as consumers find alternatives or adjust their preferences, the demand becomes more elastic, indicating a greater sensitivity to price changes in the long run.

Question 4

Price elasticity of demand is defined as the:

Accepted Answer

Price elasticity of demand is indeed defined as the ratio of the percentage change in quantity demanded to 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 5

The price elasticity of demand for a good will _____ as the availability of substitutes _____.

Accepted Answer

The price elasticity of demand for a good increases as the availability of substitutes increases because consumers can more easily switch to alternative products if the price of the good rises, making demand more sensitive to price changes.

Question 6

Which of the following is likely to have a more elastic short-run demand curve?

Accepted Answer

The answer of Which of the following is likely to...

Question 7

The price elasticity of demand for gourmet coffee is estimated to be equal to 1.6. It is expected, therefore, that a 5 percent increase in price would lead to a:

Accepted Answer

The formula for price elasticity of demand is the percent change in quantity demanded divided by the percent change in price. In this case, the elasticity is 1.6, which means that a 1 percent increase in price would lead to a 1.6 percent decrease in the quantity of gourmet coffee demanded. Therefore, a 5 percent increase in price would lead to a 8 percent decrease in the quantity of gourmet coffee demanded (5 x 1.6 = 8). So the correct answer is C.

Question 8

If the demand for a good is perfectly elastic, the price elasticity of demand is equal to _____ and the demand curve is _____.

Accepted Answer

If the demand for a good is perfectly elastic, it means that any increase in price will cause consumers to completely stop purchasing the good. This results in an infinitely large change in quantity demanded for any change in price, making the price elasticity of demand equal to infinity. The demand curve is horizontal because the quantity demanded is completely responsive to any change in price.

Question 9

For a given increase in price, _____.

Accepted Answer

This is the basic concept of elasticity of demand. When the price increases, if the demand is elastic, the quantity demanded will decrease significantly, whereas if the demand is inelastic, the quantity demanded will decrease only slightly. Therefore, A is the correct answer.

Question 10

The demand for a good is said to be _____ when quantity demanded changes proportionately to price changes.

Accepted Answer

If a good has a unit elastic demand curve, it means that the percentage change in quantity demanded is equal to the percentage change in price. In other words, if the price of the good increases by 10%, the quantity demanded will decrease by 10%, resulting in a constant total revenue. Therefore, the demand for the good is neither perfectly elastic nor perfectly inelastic, and is not highly sensitive or unresponsive to price changes.

Question 11

Other things being equal, the greater the price elasticity of demand for a good, the _____.

Accepted Answer

The greater the price elasticity of demand for a good, the larger the proportion of income spent on the good. This is because when consumers spend a significant portion of their income on a good, they are more sensitive to price changes, making the demand for that good more elastic.

Question 12

Erin runs a cookie store in Rhode Island. After raising the price from $1 to $2 per cookie, her total revenue from selling cookies per week decreased from $200 to $150. Thus, it can be said that the demand for Erin's cookies is:

Accepted Answer

The demand for Erin's cookies is elastic because her total revenue decreased after increasing the price, indicating that the percentage decrease in quantity demanded was greater than the percentage increase in price, which results in a price elasticity of demand greater than one.

Question 13

The long-run demand curve for air travel is likely to be:

Accepted Answer

In the long run, consumers and businesses have more flexibility to adjust their behavior and alternatives to air travel may become more feasible (such as video conferencing or alternative modes of transportation). Therefore, the long-run demand curve for air travel is likely to be more elastic (responsive to changes in price) than the short-run demand curve.

Question 14

Which of the following is not a determinant factor of the price elasticity of demand for a good?

Accepted Answer

The availability of complementary goods is not a determinant factor of the price elasticity of demand for a good. The other factors listed—proportion of income spent on the good, availability of close substitute goods, amount of time that has elapsed since the price change, and taste and preferences of consumers—are all factors that can affect the elasticity of demand for a good.

Question 15

Which of the following is true of a good for which the demand is elastic?

Accepted Answer

When the demand for a good is elastic, a change in price will cause a significant change in the quantity demanded. Consumers are more sensitive to price changes and will likely switch to a substitute or reduce consumption. This means that the price change will persist over a longer time period as consumers take time to adjust their buying habits.

Question 16

A steel mill raises the price of steel by 20 percent, which results in a 7 percent reduction in the quantity of steel demanded. The price elasticity of demand is _____.

Accepted Answer

Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)
Here, the price of steel is increased by 20%, which results in a 7% reduction in quantity demanded.
So, percentage change in quantity demanded= -7%
percentage change in price= 20%
Price elasticity of demand = (-7%/20%)= -0.35
Since the elasticity value is negative, we ignore the sign and take the absolute value, which is 0.35.

Question 17

Which of the following goods is likely to have a more elastic demand curve?

Accepted Answer

Luxury goods are typically more expensive and not considered a necessity, which means that they are often more elastic because consumers can more easily choose to purchase a substitute or not purchase the luxury good at all.

Question 18

At Bailey's Barber Shop, a 5 percent increase in the price of haircuts results in a 15 percent decrease in the number of haircuts per day. Which of the following is the price elasticity of demand of haircuts?

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 (-15%)/(5%) = -3. The negative sign indicates that the demand decreases as the price increases, which is typical for most goods. The magnitude of 3 indicates the elasticity.

Question 19

If recent sharp increases in the price of a life-saving drug have had only a small effect on the amount of the drug purchased, then the demand for the drug is said to be:

Accepted Answer

If the sharp increase in the price of a life-saving drug has a small effect on the amount of the drug purchased, it indicates that the demand for the drug is relatively inelastic. This means that the consumers of the drug are not very sensitive to changes in its price and are willing to pay a higher price for the drug, even if it is essential for their survival or well-being. In other words, the demand for the drug is relatively insensitive to changes in its price, which signifies a relatively inelastic demand.

Question 20

A steel mill raises the price of steel by 7 percent, which results in a 20 percent reduction in the quantity of steel demanded. The price elasticity of demand is _____.

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 20% / 7% = 2.857, which rounds to 2.9.

Quiz 4: Using Supply and Demand