Question 1

Suppose the price of a box of strawberries increases from $$4 to 6$$, and the quantity demanded decreases from 1,000 to 600 boxes per week. Calculate the price elasticity of demand using the midpoint formula. Which of the following best describes the demand for strawberries?

Accepted Answer

$$\frac{(600-1000)/((600+1000)/2)}{(6-4)/((6+4)/2)} = \frac{-400/800}{2/5} = \frac{-0.5}{0.4} = -1.25$$; Demand is elastic.

Question 2

Which of the following goods is most likely to have an inelastic demand?

Accepted Answer

Prescription medication for a chronic illness

Question 3

If the price elasticity of demand for a product is less than 1, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will increase.

Question 4

A 10% increase in income leads to a 15% increase in the quantity demanded for concert tickets. What is the income elasticity of demand, and what type of good are concert tickets?

Accepted Answer

$$\frac{15\%}{10\%} = 1.5$$; Concert tickets are a luxury good.

Question 5

If the cross elasticity of demand between two goods is negative, what does this imply about the relationship between the goods?

Accepted Answer

They are complements.

Question 6

The price of sushi rises from $$0.98 to 1.02$$, and the quantity of soy sauce demanded falls from 101 to 99 units. Calculate the cross elasticity of demand for soy sauce with respect to the price of sushi.

Accepted Answer

$$\frac{(99-101)/100}{(1.02-0.98)/1.00} = \frac{-2\%}{4\%} = -0.5$$

Question 7

Which of the following factors will make the price elasticity of demand for a good more elastic?

Accepted Answer

The good has many close substitutes.

Question 8

Suppose the price of jeans increases from $$125 to 135 $$per pair, and the quantity supplied increases from 28 to 36 million pairs. Calculate the price elasticity of supply using the midpoint formula.

Accepted Answer

$$\frac{(36-28)/32}{(135-125)/130} = \frac{8/32}{10/130} = \frac{0.25}{0.077} = 3.25$$

Question 9

Which supply curve represents perfectly inelastic supply?

Accepted Answer

A vertical supply curve

Question 10

If the income elasticity of demand for bus rides is $$-0.38$$, what type of good are bus rides?

Accepted Answer

Inferior good

Question 11

Which of the following best describes the effect of a price decrease on total revenue when demand is elastic?

Accepted Answer

Total revenue increases.

Question 12

A good has a price elasticity of demand equal to 1. What happens to total revenue if the price increases?

Accepted Answer

Total revenue remains unchanged.

Question 13

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

Accepted Answer

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

Question 14

Which of the following scenarios would most likely result in a highly elastic supply?

Accepted Answer

A product that can be produced using many different resources and has a long production period.

Question 15

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

Accepted Answer

The goods are substitutes.

Question 16

A decrease in the price of a soft drink causes the demand for pizza to increase. What does this indicate about the relationship between pizza and soft drinks?

Accepted Answer

They are complementary goods.

Question 17

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

Accepted Answer

A horizontal line

Question 18

If the price of a normal good increases and the demand is elastic, what will happen to total revenue?

Accepted Answer

Total revenue will decrease.

Elasticity in Microeconomics: Price, Income, Cross, and Supply Elasticity

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