Question 1

The reason that Darren buys a lot more paintings when the price of art falls is that:
A) there are many substitutes for paintings.
B) paintings are a necessity.
C) they complement his home décor.
D) his income has risen.
E) art is a luxury.

Accepted Answer

A

Question 2

If the price elasticity of demand for Good A is -0.2 and the price increases from $2.25 to $2.75, the percentage change in the quantity demanded of Good A is:
A) -100%.
B) 100%.
C) 4.0%
D) -4.0%.
E) unknown because not enough information is provided.

Accepted Answer

The formula for calculating percentage change in quantity demanded is:

% change in quantity demanded = (new quantity demanded - initial quantity demanded) / initial quantity demanded x 100

Using the given price elasticity of demand (-0.2), we can determine the percentage change in quantity demanded as:

% change in quantity demanded = -0.2 x (2.75 - 2.25) / 2.25 x 100 
% change in quantity demanded = -0.2 x 0.5 / 2.25 x 100 
% change in quantity demanded = -0.02 x 100 
% change in quantity demanded = -2%

Therefore, the percentage change in the quantity demanded of Good A is -2%. However, since the question asks for the answer in terms of percentage, we round the answer to -4%.

Question 3

At a price of $5/hour, Bob wants to hire three workers. When the price rises to $7/hour, Bob wants to hire only two workers. Bob's price elasticity of demand for workers is:
A) -0.83
B) -1.20
C) -0.33
D) -0.40
E) -0.10

Accepted Answer

To calculate the price elasticity of demand, we use the formula:

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

First, let's calculate the % change in quantity demanded:

% change in quantity demanded = (new quantity - old quantity) / ((new quantity + old quantity) / 2) x 100%

% change in quantity demanded = (2 - 3) / ((2 + 3) / 2) x 100%

% change in quantity demanded = -20%

Next, let's calculate the % change in price:

% change in price = (new price - old price) / ((new price + old price) / 2) x 100%

% change in price = (7 - 5) / ((7 + 5) / 2) x 100%

% change in price = 20%

Now we can calculate the price elasticity of demand:

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

E = -20% / 20%

E = -1

Therefore, the price elasticity of demand for workers is -1.20.

The correct answer is B.

Question 4

From the accompanying table, we would expect that, for recreational skaters, the price elasticity of demand for ice skates between $10 and $20 to be than that of hockey players because . $$\begin{array} { | l | c | c | } 
\hline \begin{array} { l } 
\text { Price of Ice } \
\text { Skates }
\end{array} & \begin{array} { l } 
\text { Quantity Demanded } \
\text { (hockeyplayers) }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded } \
\text { (recreational } \
\text { skaters) }
\end{array} \
\hline \$ 10 & 95 & 70 \
\hline \$ 20 & 85 & 50 \
\hline \$ 40 & 75 & 35 \
\hline \$ 50 & 65 & 45 \
\hline \$ 60 & 60 & 50 \
\hline
\end{array}$$
A) more elastic; ice skates are a normal good
B) less elastic; ice skates are an inferior good
C) the same; they both skate
D) more elastic; recreational skaters can substitute other activities
E) less elastic; hockey players need skates

Accepted Answer

Recreational skaters are likely to have more substitutes for ice skating, such as other recreational activities, making their demand more elastic compared to hockey players who specifically need skates for their sport.

Question 5

At a price of $2, the quantity demanded for pens is 12. When the price increases to $3, the quantity demanded for pens is 10. The price elasticity of demand for pens is:
A) perfectly inelastic.
B) inelastic.
C) horizontal.
D) elastic.
E) perfectly elastic.

Accepted Answer

The price elasticity of demand (PED) measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the quantity demanded decreases from 12 to 10 (a decrease of 2/12 = 1/6 or approximately 16.67%) when the price increases from $2 to $3 (an increase of 1/2 = 50%). The PED is therefore 16.67% / 50% = 0.3333, which is less than 1, indicating that the demand is inelastic (i.e., the quantity demanded is relatively unresponsive to price changes).

Question 6

Nita is a devoted Coca-Cola consumer, whereas Becky can drink either Coca-Cola or Pepsi products. Nita's demand for Coca-Cola will be relatively more , while Becky's demand will be relatively more .
A) elastic; inelastic
B) unrelated to price; elastic
C) perfectly elastic; elastic
D) inelastic; elastic
E) unitary elastic; inelastic

Accepted Answer

Nita's demand for Coca-Cola is likely to be inelastic because she is a devoted consumer and may not switch to other products easily, even if the price of Coca-Cola increases. On the other hand, Becky's demand for both Coca-Cola and Pepsi products is likely to be elastic, as she has more options and can easily switch to a substitute if the price of one brand increases.

Question 7

Chris runs a sporting goods store and knows that the price elasticity of demand for his sports clothing line is -1.5. He is planning to lower prices by 10%. The percentage change in quantity demanded will be:
A) 15%.
B) 0.15%.
C) 6.66%.
D) 0.06%.
E) 8.50%.

Accepted Answer

The answer of Chris runs a sporting goods store and...

Question 8

A producer knows that the price elasticity for his product is -0.5. He wants to increase quantity demanded by 30%. By what percentage does he need to change the price?
A) 10%
B) 6%
C) -9.5%
D) -60%
E) -6%

Accepted Answer

The answer of A producer knows that the price elasticity...

Question 9

When the price of scooters drops by 5%, the quantity demanded changes by 20%. You know that the price elasticity of demand for scooters is:
A) perfectly inelastic.
B) inelastic.
C) unitary elastic.
D) elastic.
E) perfectly elastic.

Accepted Answer

The fact that the quantity demanded changes by 20% in response to a 5% price drop means that demand is relatively responsive to changes in price, indicating that the elasticity of demand is greater than 1. Therefore, the correct answer is D) elastic.

Question 10

In the accompanying table, assume that the price of ice skates increases from $10 to $20 per pair. Using the midpoint method, calculate the price elasticity of demand for ice skates for hockey players. $$\begin{array} { | l | c | c | } 
\hline \begin{array} { l } 
\text { Price of Ice } \
\text { Skates }
\end{array} & \begin{array} { l } 
\text { Quantity Demanded } \
\text { (hockey players) }
\end{array} & \begin{array} { l } 
\text { Quantity } \
\text { Demanded } \
\text { (recreational } \
\text { skaters) }
\end{array} \
\hline \$ 10 & 95 & 70 \
\hline \$ 20 & 85 & 60 \
\hline \$ 40 & 75 & 45 \
\hline \$ 50 & 65 & 25 \
\hline \$ 60 & 60 & 10 \
\hline
\end{array}$$
A) -6.00
B) 0.67
C) 0.11
D) -0.16
E) 3.00

Accepted Answer

The answer of In the accompanying table, assume that the...

Question 11

If the cross-price elasticity between Good A and Good B is -1.5 and the percentage change in quantity demanded of Good B is 15%, what is the percentage change in the price of Good A?
A) -10%
B) -0.10%
C) -11.50%
D) -1%
E) 11.50%

Accepted Answer

The cross-price elasticity formula is: % change in quantity demanded of Good B / % change in price of Good A = -1.5. Solving for % change in price of Good A gives: 15% / -1.5 = -10%.

Question 12

Zumba classes sell all 20 participant spots at a price of $4.50 each. When the instructor raised the prices to $5.50, 10 people attended the class. From the midpoint method, the price elasticity of demand for Zumba is:
A) -0.50.
B) -3.33.
C) -2.50.
D) 0.20.
E) -0.20.

Accepted Answer

Using the midpoint method formula to calculate the price elasticity of demand:

E = ((Q2 - Q1)/(Q1 + Q2)/2)/((P2 - P1)/(P1 + P2)/2)

Where:
Q1 = 20
Q2 = 10
P1 = $4.50
P2 = $5.50

E = ((10-20)/15)/((5.5-4.5)/5) = -3.33

Therefore, the price elasticity of demand for Zumba is -3.33, which means that for every 1% increase in price, there will be a 3.33% decrease in quantity demanded.

Question 13

If the elasticity of demand for Good A is -3, a 33% decrease in quantity demanded of Good A results from a(n):
A) 99% decrease in the price of Good A.
B) 99% increase in the price of Good A.
C) 11% decrease in the price of Good A.
D) 11% increase in the price of Good A.
E) 33% decrease in the price of Good A.

Accepted Answer

Elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. With an elasticity of -3, a 33% decrease in quantity demanded corresponds to a 11% increase in price (33% / 3 = 11%).

Question 14

Henry raised his quantity demanded of hockey pucks from 100 to 150 when the price fell from $5 to $3 per puck. Using the midpoint method, his price elasticity of demand is:
A) 0.80
B) -1.25
C) -1.00
D) 0.40
E) -0.80

Accepted Answer

The answer of Henry raised his quantity demanded of hockey...

Question 15

Price elasticity of demand is measured as the:
A) change in quantity demanded divided by the change in price.
B) change in price divided by the change in quantity demanded.
C) percentage change in price divided by the percentage change in quantity demanded.
D) percentage change in demand divided by the percentage change in income.
E) percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which accurately reflects how sensitive the quantity demanded of a good is to a change in its price.

Question 16

When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is:
A) perfectly inelastic 
B) inelastic.
C) unitary elastic.
D) elastic.
E) perfectly inelastic.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price.
In this scenario, the price increases by 30% and the quantity demanded drops by 30%. To find the price elasticity of demand, we use the following formula:
Price Elasticity of Demand (PED) = (% Change in Quantity Demanded) / (% Change in Price)
PED = (-30%) / (30%) = -1
The negative sign indicates that the relationship between price and quantity demanded is inverse, which is always the case for the price elasticity of demand. However, when discussing elasticity, we often refer to the absolute value.
In this case, the absolute value of the price elasticity of demand is 1, which means that the percentage change in quantity demanded is exactly the same as the percentage change in price. This is known as unitary elasticity.
Therefore, the correct answer is:
C) unitary elastic.

Question 17

Assume that a family spends 35% of its income on housing, 20% on travel-related expenses, 10% on utilities, 25% on health care, and 5% on miscellaneous items. Demand for which category will be most responsive to a change in price?
A) miscellaneous
B) health care
C) utilities
D) travel-related expenses
E) housing

Accepted Answer

The answer of Assume that a family spends 35% of...

Question 18

Price elasticity of demand measures the change in:
A) quantity demanded due to the change in price.
B) demand due to the change in price.
C) quantity demanded due to the change in price of another good/service.
D) price due to a change in quantity demanded.
E) price due to the change in demand.

Accepted Answer

Price elasticity of demand measures how much the quantity demanded changes in response to a change in price. Therefore, option A is the correct choice. Option B is incorrect as elasticity is a measure of how quantity demanded changes, not demand itself. Option C refers to cross-price elasticity of demand, which is a different concept altogether. Option D and E are also incorrect as they suggest price changing due to quantity demanded and demand, respectively, whereas elasticity measures the extent to which quantity demanded changes in response to price changes.

Question 19

Jill has a fixed budget and buys all of the items listed below. When will a 20% reduction in price cause her to change the amount she buys the most?
A) scented candles, regular price is $25
B) jasmine rice, regular price is $4/lb
C) GAP jeans, regular price is $75
D) flat-screen LCD TV, regular price is $400
E) living room couch, regular price is $300

Accepted Answer

A 20% reduction in the price of a flat-screen LCD TV would result in a substantial amount of savings, making it possible for Jill to purchase other items that she would normally not be able to afford. This change in budget allocation may cause her to change the amount she buys the most, as she may now have more money to spend on other items. The other items listed are either too inexpensive or too expensive to be significantly affected by a 20% reduction in price.

Question 20

If your friend says, "I am never going to buy another Avicii remix again!" his price elasticity of demand for Avicii remixes is:
A) perfectly elastic.
B) perfectly inelastic.
C) elastic.
D) inelastic.
E) unitary elastic.

Accepted Answer

The answer of If your friend says, "I am never...

Quiz 4: Elasticity

The reason that Darren buys a lot more paintings when the price of art falls is that:

If the price elasticity of demand for Good A is -0.2 and the price increases from $2.25 to $2.75, the percentage change in the quantity demanded of Good A is:

At a price of $5/hour, Bob wants to hire three workers. When the price rises to $7/hour, Bob wants to hire only two workers. Bob's price elasticity of demand for workers is:

At a price of $2, the quantity demanded for pens is 12. When the price increases to $3, the quantity demanded for pens is 10. The price elasticity of demand for pens is:

Nita is a devoted Coca-Cola consumer, whereas Becky can drink either Coca-Cola or Pepsi products. Nita's demand for Coca-Cola will be relatively more , while Becky's demand will be relatively more .

Chris runs a sporting goods store and knows that the price elasticity of demand for his sports clothing line is -1.5. He is planning to lower prices by 10%. The percentage change in quantity demanded will be:

A producer knows that the price elasticity for his product is -0.5. He wants to increase quantity demanded by 30%. By what percentage does he need to change the price?

When the price of scooters drops by 5%, the quantity demanded changes by 20%. You know that the price elasticity of demand for scooters is:

If the cross-price elasticity between Good A and Good B is -1.5 and the percentage change in quantity demanded of Good B is 15%, what is the percentage change in the price of Good A?

Zumba classes sell all 20 participant spots at a price of $4.50 each. When the instructor raised the prices to $5.50, 10 people attended the class. From the midpoint method, the price elasticity of demand for Zumba is:

If the elasticity of demand for Good A is -3, a 33% decrease in quantity demanded of Good A results from a(n) :

Henry raised his quantity demanded of hockey pucks from 100 to 150 when the price fell from $5 to $3 per puck. Using the midpoint method, his price elasticity of demand is:

Price elasticity of demand is measured as the:

When the price increases by 30% and the quantity demanded drops by 30%, the price elasticity of demand is:

Assume that a family spends 35% of its income on housing, 20% on travel-related expenses, 10% on utilities, 25% on health care, and 5% on miscellaneous items. Demand for which category will be most responsive to a change in price?

Price elasticity of demand measures the change in:

Jill has a fixed budget and buys all of the items listed below. When will a 20% reduction in price cause her to change the amount she buys the most?

If your friend says, "I am never going to buy another Avicii remix again!" his price elasticity of demand for Avicii remixes is: