Q: Which formula correctly calculates the percentage change in quantity demanded when moving from $$Q_0 to$$ $$Q_1$$?

$$\%\Delta Q = \frac{Q_1$ - Q_0$}{(Q_1$ + Q_0$)/2} \times 100$$

Q: A supply curve is given by $$Q_s = 10 + 2P. If $$the price increases from $$5 to$$ $$6$$, what is the percentage change in quantity supplied?

$$\%\Delta Q_s = \frac{(22 - 20)}{(22 + 20)/2} \times 100 = \frac{2}{21} \times 100 \approx 9.52\%$$

Question 1

Suppose the price of a product increases by 10%, and as a result, the quantity demanded decreases by 20%. What is the price elasticity of demand, and how would you classify the demand for this product?

Accepted Answer

The price elasticity of demand is $$e = \frac{-20\%}{10\%} = -2$$, which is elastic.

Question 2

If a good has many close substitutes, what can you infer about its price elasticity of demand?

Accepted Answer

The price elasticity of demand is likely to be high (elastic).

Question 3

A furniture store increases the price of sofas by 5%. If the quantity sold decreases by 6.3%, what is the price elasticity of demand for sofas?

Accepted Answer

$$e = \frac{-6.3\%}{5\%} = -1.26$$

Question 4

Which of the following goods is most likely to have inelastic demand based on real-world examples?

Accepted Answer

Food

Question 5

If the price elasticity of demand for cigarettes is $$e = -0.4$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will increase because demand is inelastic.

Question 6

Which formula correctly calculates the percentage change in quantity demanded when moving from $$Q_0 to$$ $$Q_1$$?

Accepted Answer

$$\%\Delta Q = \frac{Q_1$ - Q_0$}{(Q_1$ + Q_0$)/2} 	imes 100$$

Question 7

A demand curve is given by $$Q = 60 - 6P. $$What is the slope of the demand curve, and what does this imply about responsiveness?

Accepted Answer

The slope is $$-6$$, indicating that quantity demanded is highly responsive to price changes.

Question 8

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

Accepted Answer

The goods are substitutes.

Question 9

Suppose the income elasticity of demand for a product is $$e = 1.5. $$What type of good is this?

Accepted Answer

A normal, income-elastic good.

Question 10

A supply curve is given by $$Q_s = 10 + 2P. If $$the price increases from $$5 to$$ $$6$$, what is the percentage change in quantity supplied?

Accepted Answer

$$\%\Delta Q_s = \frac{(22 - 20)}{(22 + 20)/2} 	imes 100 = \frac{2}{21} 	imes 100 \approx 9.52\%$$

Question 11

Which of the following is NOT a determinant of the price elasticity of supply?

Accepted Answer

Consumer preferences

Question 12

If a good is perfectly inelastic, what happens to quantity demanded when price changes?

Accepted Answer

Quantity demanded remains constant regardless of price.

Question 13

A government wants to increase tax revenue from cigarettes. Based on elasticity concepts, what should they consider?

Accepted Answer

Cigarettes have inelastic demand, so increasing taxes will likely increase revenue.

Question 14

If the price elasticity of supply is $$e = 0$$, what does this mean for the supply curve?

Accepted Answer

The supply curve is perfectly inelastic; quantity supplied does not change with price.

Question 15

Which of the following scenarios best illustrates a supply shifter?

Accepted Answer

A sudden increase in the price of kerosene affecting airline ticket prices.

Question 16

If a product has a price elasticity of demand of $$e = -1$$, what happens to total revenue when the price changes?

Accepted Answer

Total revenue remains the same.

Question 17

Which equation correctly defines the income elasticity of demand?

Accepted Answer

$$e = \frac{\%\Delta Q}{\%\Delta 	ext{Income}}$$

Question 18

A product’s cross-price elasticity of demand with respect to another product is $$-0.8. $$What does this indicate?

Accepted Answer

The products are complements.

Question 19

Which of the following is a real-world example of a good with high price elasticity of demand?

Accepted Answer

Motor vehicles

Elasticity in Microeconomics: Principles, Measurement, and Applications

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