Question 1

The midpoint method for calculating elasticities is convenient in that it allows us to
A) ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price.
B) calculate the same value for the elasticity, regardless of whether the price increases or decreases.
C) assume that sellers' total revenue stays constant when the price changes.
D) restrict all elasticity values to between 0 and 1.

Accepted Answer

The midpoint method for calculating elasticities takes into account both the percentage change in price and quantity demanded, resulting in the same value for the elasticity regardless of whether the price increases or decreases. This method does not assume anything about sellers' total revenue or restrict elasticity values to between 0 and 1.

Question 2

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
A) 0.22.
B) 0.67.
C) 1.33.
D) 1.50.

Accepted Answer

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

Using the midpoint method:
% change in quantity demanded = (change in quantity demanded / average quantity demanded) x 100%
= [(80-100) / ((80+100)/2)] x 100%
= -20/90 x 100%
= -22.22%

% change in price = (change in price / average price) x 100%
= [(7-5) / ((7+5)/2)] x 100%
= 2/6 x 100%
= 33.33%

Price elasticity of demand = (-22.22% / 33.33%)
= -0.6666
= 0.67 (approx.)

Therefore, the price elasticity of demand is about 0.67. Option B is the correct choice.

Question 3

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is
A) 1.14.
B) 1.
C) 0.25.
D) 0.13.

Accepted Answer

The answer of When the price of a bracelet was...

Question 4

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is
A) elastic, and her demand curve would be relatively flat.
B) elastic, and her demand curve would be relatively steep.
C) inelastic, and her demand curve would be relatively flat.
D) inelastic, and her demand curve would be relatively steep.

Accepted Answer

Maxine's demand is elastic because when the price decreases from $5 to $4, she buys 50% more chai tea lattes (20 to 30). Furthermore, her demand curve would be relatively flat because the percentage change in quantity demanded is greater than the percentage change in price.

Question 5

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be
A) elastic.
B) unit elastic.
C) inelastic.
D) highly responsive to changes in income as well as changes in prices.

Accepted Answer

There are very few substitutes for automotive tires, meaning that consumers have few options to turn to if the price of tires were to increase. This results in a situation where the demand for tires is relatively insensitive to changes in price - known as price inelasticity.

Question 6

Economists compute the price elasticity of demand as the
A) percentage change in price divided by the percentage change in quantity demanded.
B) change in quantity demanded divided by the change in the price.
C) percentage change in quantity demanded divided by the percentage change in price.
D) percentage change in quantity demanded divided by the percentage change in income.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. This formula measures the responsiveness of demand to changes in price, and it helps in measuring the degree of sensitivity of consumers to changes in price.

Question 7

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?
A) The quantity of the good demanded decreases from 250 to 150.
B) The quantity of the good demanded decreases from 200 to 100.
C) The quantity of the good demanded decreases by 0.05 percent.
D) The quantity of the good demanded decreases by 0.2 percent.

Accepted Answer

Using the midpoint method, the formula for calculating price elasticity of demand is:
E = [(Q2-Q1)/((Q2+Q1)/2)] / [(P2-P1)/((P2+P1)/2)]

We are told that E = 2. Let's assume that the initial price was $100.

For a 0.1% increase in price, P1 = $100 and P2 = $100.1.

Using the formula, we can rearrange it to solve for the change in quantity demanded (Q2-Q1):

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

(Q2-Q1) = 2 * [(250+150)/2] * (0.1)/[(100.1+100)/2] = 25

This means that quantity demanded will decrease by 25 units. To find the percentage change, we can use the midpoint method again:

% change in quantity demanded = (Q2-Q1)/[(Q2+Q1)/2] * 100%

% change in quantity demanded = (-25)/[(250+150)/2] * 100% = -8.33%

However, we are looking for a decrease of only 0.1%. Therefore, the answer is D: The quantity of the good demanded decreases by 0.2%.

Question 8

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.

Accepted Answer

The answer of When the price of candy bars is...

Question 9

There are very few, if any, good substitutes for motor oil. Therefore, the
A) demand for motor oil would tend to be inelastic.
B) demand for motor oil would tend to be elastic.
C) demand for motor oil would tend to respond strongly to changes in prices of other goods.
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Accepted Answer

The inelastic demand for motor oil is due to the absence of good substitutes. Even if the price of motor oil increases, consumers are still likely to purchase it, as there are no good alternatives available.

Question 10

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
A) 0.35.
B) 0.43.
C) 2.33.
D) 2.89.

Accepted Answer

The midpoint method formula for calculating price elasticity of demand is:

Price Elasticity of Demand = [(Q₂ - Q₁)/((Q₁ + Q₂)/2)] / [(P₂ - P₁)/((P₁ + P₂)/2)]

Using the numbers provided:

Q₁ = 600
Q₂ = 800
P₁ = $6.50
P₂ = $5.75

Price Elasticity of Demand = [(800 - 600)/((600 + 800)/2)] / [($5.75 - $6.50)/(($6.50 + $5.75)/2)]

Price Elasticity of Demand = [200/700] / [-0.75/6.125]

Price Elasticity of Demand = 2.33

Therefore, the best choice is C, with a price elasticity of demand of 2.33, which indicates that the quantity demanded is highly responsive to changes in price in this price range.

Question 11

For which of the following goods is the price elasticity of demand most inelastic?
A) pizza
B) large pizza
C) large pepperoni pizza
D) Domino's large pepperoni pizza

Accepted Answer

The more specific or differentiated a good is, the more elastic its demand tends to be, as consumers can more easily switch to a substitute. On the other hand, a more basic or necessary good, such as pizza in general, will have a more inelastic demand because consumers are less likely to switch to substitutes.

Question 12

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is
A) 0.33.
B) 0.45.
C) 2.20.
D) 3.00.

Accepted Answer

The midpoint method formula for calculating price elasticity of demand is:

(price change ÷ midpoint price) ÷ (quantity change ÷ midpoint quantity)

Using the given values, we get:

Price change = $2.50 - $3.00 = -$0.50
Midpoint price = ($3.00 + $2.50) ÷ 2 = $2.75
Quantity change = 300 - 200 = 100
Midpoint quantity = (200 + 300) ÷ 2 = 250

Plugging these values into the formula:

(price change ÷ midpoint price) ÷ (quantity change ÷ midpoint quantity)
= (-$0.50 ÷ $2.75) ÷ (100 ÷ 250)
= -0.1818 ÷ 0.4
= -0.4545

The negative sign just means that price and quantity demanded have an inverse relationship (when price goes down, quantity demanded goes up). To get the absolute value of the price elasticity, we drop the negative sign:

| -0.4545 | = 0.4545

Since the price elasticity is less than 1, demand is inelastic (not very responsive to price changes), as a 1% decrease in price leads to less than a 1% increase in quantity demanded.

Question 13

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about
A) 0.55.
B) 10.
C) 2.
D) 1.83.

Accepted Answer

The midpoint method calculates elasticity as the percentage change in quantity demanded divided by the percentage change in price. The percentage change in quantity is (100-120)/((100+120)/2) = -0.1818, and the percentage change in price is (7-5)/((7+5)/2) = 0.3333. The elasticity is |-0.1818/0.3333| = 0.545, approximately 0.55.

Question 14

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.

Accepted Answer

We can use the midpoint method to calculate the price elasticity of demand for eBooks: 
% change in quantity demanded = [(new quantity - old quantity) / ((new quantity + old quantity) / 2)] x 100% 
% change in quantity demanded = [(700 - 400) / ((700 + 400) / 2)] x 100% 
% change in quantity demanded = (300 / 550) x 100% 
% change in quantity demanded = 54.55%

% change in price = [(new price - old price) / ((new price + old price) / 2)] x 100% 
% change in price = [(10 - 15) / ((10 + 15) / 2)] x 100% 
% change in price = (-5 / 12.5) x 100% 
% change in price = -40%

Using the formula for price elasticity of demand: 
Price elasticity of demand = (% change in quantity demanded) / (% change in price) 
Price elasticity of demand = 54.55% / -40% 
Price elasticity of demand = -1.36

Since the price elasticity of demand is greater than 1, we know that demand is elastic. When the price decreases by 40%, the quantity demanded increases by 54.55%.

Question 15

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
A) inelastic.
B) unit elastic.
C) elastic.
D) highly responsive to changes in income.

Accepted Answer

A person who takes a prescription drug to control high cholesterol has a demand that is inelastic because the drug is considered a necessity for their health and there are limited substitutes available. This means that even if there is a price increase, the person will likely continue to purchase the drug at a similar rate because the benefit of controlling their high cholesterol outweighs the cost.

Question 16

Which of the following expressions can be used to compute the price elasticity of demand?  
A) Price elasticity of demand = • .
B) Price elasticity of demand = • .
C) Price elasticity of demand = • .
D) Price elasticity of demand = • .

Accepted Answer

The answer of Which of the following expressions can be...

Question 17

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
A) demand for ice cream cones in this price range is elastic.
B) demand for ice cream cones in this price range is inelastic.
C) demand for ice cream cones in this price range is unit elastic.
D) price elasticity of demand for ice cream cones in this price range is 0.

Accepted Answer

The answer of Suppose that 50 ice cream cones are...

Question 18

The midpoint method is used to compute elasticity because it
A) automatically computes a positive number instead of a negative number.
B) results in an elasticity that is the same as the slope of the demand curve.
C) gives the same answer regardless of the direction of change.
D) automatically rounds quantities to the nearest whole unit.

Accepted Answer

The midpoint method calculates elasticity by taking the average of two points and dividing the percentage change in quantity demanded by the percentage change in price, regardless of whether the price increases or decreases. This results in the same numerical value of elasticity regardless of the direction of change.

Question 19

Which of the following expressions is valid for the price elasticity of demand?
A) Price elasticity of demand = .
B) Price elasticity of demand = .
C) Price elasticity of demand = .
D) Price elasticity of demand = .

Accepted Answer

The valid expression for the price elasticity of demand should have a numerical value between 0 and -∞ (inclusive). Option B falls within this range, while the other options have alphabetical characters or numerical values outside this range.

Question 20

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
A) a 7.5 increase in the price of the good
B) a 13.33 percent increase in the price of the good
C) an increase in the price of the good from $7.50 to $10
D) an increase in the price of the good from $10 to $17.50

Accepted Answer

According to the midpoint method, price elasticity of demand is calculated as:
Price elasticity of demand = ((Q2 - Q1)/((Q1 + Q2)/2)) / ((P2 - P1)/((P2 + P1)/2))
Let's assume Q2 = 90 and Q1 = 100, which represents a decrease of 10 percent in quantity demanded.
Using the given price elasticity of demand of 0.75, we get:
0.75 = ((90-100)/((90+100)/2)) / ((P2-P1)/((P2+P1)/2))
Solving for (P2 - P1), we get 0.1333 or 13.33%, which is the percentage increase in price required to decrease the quantity demanded by 10%. Therefore, option B is the correct choice.

Quiz 5: Elasticity and Its Application

The midpoint method for calculating elasticities is convenient in that it allows us to

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is

There are very few, if any, good substitutes for automotive tires. Therefore, the demand for automotive tires would tend to be

Economists compute the price elasticity of demand as the

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good?

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

There are very few, if any, good substitutes for motor oil. Therefore, the

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

For which of the following goods is the price elasticity of demand most inelastic?

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Which of the following expressions can be used to compute the price elasticity of demand? A) Price elasticity of demand = • . B) Price elasticity of demand = • . C) Price elasticity of demand = • . D) Price elasticity of demand = • .

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

The midpoint method is used to compute elasticity because it

Which of the following expressions is valid for the price elasticity of demand? A) Price elasticity of demand = . B) Price elasticity of demand = . C) Price elasticity of demand = . D) Price elasticity of demand = .

Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 0.75. Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?