Question 1

Suppose the price of a product increases from $$2 to 3$$, and as a result, the quantity demanded decreases from 10 units to 5 units. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(5-10)}{(5+10)/2} \div \frac{(3-2)}{(3+2)/2} = \frac{-5}{7.5} \div \frac{1}{2.5} = -0.67 \div 0.4 = -1.67$$

Question 2

Which of the following best describes a perfectly inelastic demand curve?

Accepted Answer

A vertical line, indicating quantity demanded does not change as price changes.

Question 3

If the price elasticity of demand for a good is $$-0.5$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will increase because demand is inelastic.

Question 4

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

Accepted Answer

A farmer selling wheat in a perfectly competitive market.

Question 5

A city imposes a $$1.00$$ per unit excise tax on avocados, shifting the supply curve upward by $$1.00. If $$the equilibrium quantity falls from $$1,000 to$$ $$500$$ and the price rises from $$2.00 to$$ $$2.50$$, how much tax revenue does the city collect per day?

Accepted Answer

$$1.00 	imes 500 = 500$

Question 6

Which of the following factors makes the demand for a good more elastic?

Accepted Answer

The availability of close substitutes.

Question 7

If the cross-price elasticity of demand between two goods is positive, what does this imply?

Accepted Answer

The goods are substitutes.

Question 8

Suppose the income elasticity of demand for restaurant meals is $$1.5. If $$consumer incomes rise by $$10\%$$, what happens to the quantity of restaurant meals demanded?

Accepted Answer

It increases by $$15\%.$$

Question 9

Which of the following statements about the slope of a demand curve and elasticity is correct?

Accepted Answer

Changing the units of measurement changes the slope but not the elasticity.

Question 10

If a 10\% increase in the price of gasoline leads to a 5\% decrease in the quantity demanded, what is the price elasticity of demand for gasoline?

Accepted Answer

$$\frac{-5\%}{10\%} = -0.5$$

Question 11

Which of the following best explains why the demand for insulin is perfectly inelastic?

Accepted Answer

Insulin is a necessity for people with diabetes, so quantity demanded does not change with price.

Question 12

If the price elasticity of supply is $$0.8$$, what does this indicate about the responsiveness of quantity supplied to price changes?

Accepted Answer

Quantity supplied is inelastic with respect to price.

Question 13

A product has a unitary price elasticity of demand. If the price increases by 10\%, what happens to total revenue?

Accepted Answer

Total revenue remains unchanged.

Question 14

Which of the following scenarios is most likely to result in a more elastic demand in the long run than in the short run?

Accepted Answer

Consumers adjusting to higher gasoline prices by buying more fuel-efficient cars over time.

Question 15

If the cross-price elasticity of demand between peanut butter and jelly is $$-0.8$$, what does this indicate?

Accepted Answer

They are complements.

Question 16

Which of the following is the correct formula for calculating the price elasticity of demand using the midpoint method?

Accepted Answer

$$\frac{Q_2$ - Q_1$}{(Q_2$ + Q_1$)/2} \div \frac{P_2$ - P_1$}{(P_2$ + P_1$)/2}$$

Question 17

If a good represents a small portion of a consumer's budget, what can you infer about its price elasticity of demand?

Accepted Answer

Demand is likely to be inelastic.

Question 18

Which of the following is an example of a good with elastic demand?

Accepted Answer

A luxury yacht.

Question 19

If the elasticity of labor supply is $$0.2$$, what does this mean?

Accepted Answer

A 10\% increase in the wage rate leads to a 2\% increase in quantity of labor supplied.

Elasticity in Microeconomics: Concepts, Calculation, and Applications

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