Question 1

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 responsiveness of quantity demanded to changes in price. Specifically, it measures the proportionate change in quantity demanded for a proportionate change in price. It does not directly relate to household income or the quantity demanded at a particular price, nor does it indicate the proportionate change in price for a given change in quantity demanded.

Question 2

If the price elasticity of demand for good A is -2, then a 1% increase in
A) consumer income will result in a 2% decrease in the demand for good A.
B) consumer income will result in a 2% increase in the demand for good A.
C) the market price of good A will result in a 2% increase in the quantity demanded of good A.
D) the market price of good A will result in a 2% decrease in the quantity demanded of good A.

Accepted Answer

The price elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in its price. If the price elasticity of demand for good A is -2, then a 1% increase in the price of good A will result in a 2% decrease in the quantity demanded of good A. Changes in consumer income are not relevant to the calculation of price elasticity of demand. Therefore, options A and B are incorrect. Option C is also incorrect because it refers to a change in market price, which is already reflected in the calculation of price elasticity of demand.

Question 3

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 4

An absolute price elasticity of demand equal to 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 absolute price elasticity of demand formula is:
|(%change in quantity demanded) / (%change in price)|
A value of 4 means that for every 1 percent increase in price, there is a 4 percent decrease in quantity demanded, and vice versa. So, if we apply the formula, we get:
|(%ΔQd) / (%ΔP)| = 4
|%ΔQd| = 4 * |%ΔP|
If we assume an increase in price, say from $100 to $104, then the percentage increase in price is:
(%ΔP) = (104-100) / 100 * 100 = 4%
Using the formula above, we can find the percentage decrease in quantity demanded:
|%ΔQd| = 4 * 4% = 16%
So, the quantity demanded would decrease by 16 percent when the price increases by 4 percent, which is consistent with choice B.

Question 5

If the absolute price elasticity of demand is 2.0, a 10 percent decrease in price will increase quantity demanded by
A) 10 percent.
B) 20 percent.
C) 5 percent.
D) 12 percent.

Accepted Answer

The formula to calculate the percentage change in quantity demanded is: (elasticity of demand) x (percentage change in price). 
If the absolute price elasticity of demand is 2.0 and the price decreases by 10 percent, then the percentage change in price is -10 percent (-0.10). 
Using the formula above, the percentage change in quantity demanded can be calculated: 
(2.0) x (-0.10) = -0.20 or -20 percent. 
However, the absolute value of elasticity of demand indicates that the percentage change will always be positive, so the answer is 20 percent, which means that a 10 percent decrease in price will increase quantity demanded by 20 percent.

Question 6

If price decreases by 10 percent and quantity demanded increases by 3 percent, the price elasticity of demand will be
A) 3.
B) 0.3.
C) 3.33.
D) 300.

Accepted Answer

Price elasticity of demand is defined as the percentage change in quantity demanded for a good or service divided by the percentage change in price. In this case, the percentage change in price is 10% and the percentage change in quantity demanded is 3%. Thus, the price elasticity of demand would be 3%/10% = 0.3.

Question 7

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 elasticity of demand using the average method is calculated as the percentage change in quantity demanded divided by the percentage change in price. The percentage change in quantity is (425-400)/((425+400)/2) = 0.0617, and the percentage change in price is (1.25-1.50)/((1.25+1.50)/2) = -0.1818. The elasticity is 0.0617 / -0.1818 = -0.339, which is approximately 0.33 in absolute value.

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 supply 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 how responsive consumers are to a change in price. It reflects the extent to which the quantity demanded changes as the price of a product or service changes. Therefore, A is the correct answer. B is incorrect because producer sensitivity to a price change is measured by price elasticity of supply. C is incorrect because it measures the responsiveness of supply to changes in demand, not demand itself. D is incorrect because the measure that reflects how much demand changes in response to a change in income is income elasticity of demand.

Question 9

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 defined as the percentage change in quantity demanded divided by the percentage change in price, which means it is always negative. However, by convention, economists typically express the price elasticity of demand as an absolute value to avoid negative signs and make it easier to compare elasticities between goods. Therefore, option B is correct.

Question 10

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 because there is an inverse relationship between price and quantity demanded. However, by convention, its absolute value is always discussed as a positive number because it represents the percentage change in quantity demanded for a one percent change in price.

Question 11

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 defined as the percentage change in quantity demanded divided by the percentage change in price. This ratio gives the measure of responsiveness of quantity demanded to changes in the price of the product. Therefore, option C is the correct definition of price elasticity of demand.

Question 12

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) the unit change in quantity demanded.
D) the cross-price elasticity of demand.

Accepted Answer

The measure of the responsiveness of quantity demanded to changes in price is known as price elasticity of demand. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. The slope of the demand curve only provides information about the direction and magnitude of the relationship between price and quantity demanded. The unit change in quantity demanded does not provide a measure of responsiveness, and cross-price elasticity of demand measures the responsiveness of quantity demanded of one good to changes in the price of another good.

Question 13

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. It helps to determine the sensitivity of consumers to price changes and is an important factor for businesses in setting prices and predicting changes in demand.

Question 14

A 2 percent rise in the price of a good leads to a 4 percent decrease in quantity demanded. The absolute price elasticity of demand is
A) 2.
B) 0.5.
C) 20.
D) 5.

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, it is 4% / 2% = 2.

Question 15

If the absolute price elasticity of demand for good X is 0.5, when there is a 10 percent increase in price, we can conclude that quantity demanded
A) has fallen by 50 percent.
B) has fallen by 20 percent.
C) has fallen by 10 percent.
D) has fallen by 5 percent.

Accepted Answer

The absolute price elasticity of demand is defined as the percentage change in quantity demanded divided by the percentage change in price. With an elasticity of 0.5 and a 10 percent increase in price, the quantity demanded would fall by 5 percent (0.5 * 10% = 5%).

Question 16

Suppose that when the price of donuts rises 10%, the quantity demanded of donuts falls 3%. Based on this information, what is the approximate absolute price elasticity of demand for donuts?
A) 3.33
B) 0.3
C) 30
D) 1.3

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 |-3%/10%| = 0.3, indicating that the demand for donuts is relatively inelastic.

Question 17

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 18

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. From the given information, we can calculate the percentage change in price as follows:

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

We know that in response to this price increase, the number of gallons of gasoline purchased has declined by 2 percent. Therefore, the percentage change in quantity demanded is:

Percentage change in quantity demanded = -2%

Using the formula for absolute price elasticity of demand, we get:

Absolute price elasticity of demand = Percentage change in quantity demanded / Percentage change in price
= -2% / 9.09%
= -0.22

However, the absolute value of the elasticity is usually reported, which gives us:

Absolute price elasticity of demand = 0.22 ≈ 0.23

Therefore, the best choice is C.

Question 19

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 20

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.

Quiz 19: Demand and Supply Elasticity

The price elasticity of demand shows

If the price elasticity of demand for good A is -2, then a 1% increase in

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

An absolute price elasticity of demand equal to 4 indicates that a

If the absolute price elasticity of demand is 2.0, a 10 percent decrease in price will increase quantity demanded by

If price decreases by 10 percent and quantity demanded increases by 3 percent, the price elasticity of demand will be

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

The price elasticity of demand measures

The price elasticity of demand is

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

The formal definition of 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 a measure of

A 2 percent rise in the price of a good leads to a 4 percent decrease in quantity demanded. The absolute price elasticity of demand is

If the absolute price elasticity of demand for good X is 0.5, when there is a 10 percent increase in price, we can conclude that quantity demanded

Suppose that when the price of donuts rises 10%, the quantity demanded of donuts falls 3%. Based on this information, what is the approximate absolute price elasticity of demand for donuts?

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

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