Question 1

Suppose the price of a product increases by 10%, and the quantity demanded decreases by 15%. Using the midpoint formula, 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 $$-1.5$$, and demand is elastic.

Question 2

Which of the following goods is most likely to have a high price elasticity of demand?

Accepted Answer

Nike sneakers

Question 3

If a city enacts a tax on soda to reduce sugar consumption, what economic concept helps predict whether soda consumption will decrease significantly?

Accepted Answer

Price elasticity of demand

Question 4

A vertical demand curve represents which type of price elasticity?

Accepted Answer

Perfectly inelastic

Question 5

Using the midpoint formula, calculate the price elasticity of demand if the price of a good falls from $$8 to$$ $$6$$, and quantity demanded rises from $$100 to$$ $$140.$$

Accepted Answer

Price elasticity of demand $$= \frac{40}{120} \div \frac{-2}{7} = -1.17$$

Question 6

Which determinant would make the demand for a product more elastic?

Accepted Answer

The product is a luxury.

Question 7

If the price elasticity of demand for a product is $$-0.3$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will increase.

Question 8

Tesla cuts the price of its Model 3 by 14%. If demand for electric vehicles is elastic, what is the likely effect on Tesla's total revenue?

Accepted Answer

Total revenue will increase because the quantity sold will rise more than the price falls.

Question 9

Which formula correctly represents the midpoint method for calculating price elasticity of demand?

Accepted Answer

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

Question 10

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

Accepted Answer

The goods are substitutes.

Question 11

A decrease in income leads to an increase in the quantity demanded of a good. What type of good is this?

Accepted Answer

Inferior good

Question 12

If the price elasticity of supply for a product is close to zero in the short run, what does this imply about the producer's ability to respond to price changes?

Accepted Answer

Producers cannot change supply in response to price changes.

Question 13

Which of the following scenarios best illustrates perfectly elastic supply?

Accepted Answer

Long-run agricultural production where farmers can supply any quantity at a given price.

Question 14

If the price of wheat falls dramatically due to increased productivity, but the income elasticity of demand for wheat is low, what is the likely long-term effect on the number of farmers?

Accepted Answer

The number of farmers will decrease.

Question 15

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

Accepted Answer

The cost of production

Question 16

If the price elasticity of demand for a product is exactly $$-1$$, what happens to total revenue when the price changes?

Accepted Answer

Total revenue remains unchanged.

Question 17

A city raises the tax on soda, expecting to increase tax revenue. If the demand for soda is highly elastic, what is the likely outcome?

Accepted Answer

Tax revenue will decrease because quantity demanded falls sharply.

Question 18

Which of the following best describes the relationship between price elasticity of demand and total revenue when demand is inelastic?

Accepted Answer

An increase in price increases total revenue.

Question 19

If the cross-price elasticity of demand between beer and wine is negative, what does this imply?

Accepted Answer

Beer and wine are complements.

Question 20

Which of the following formulas is used to calculate the income elasticity of demand?

Accepted Answer

$$\frac{	ext{Percentage change in quantity demanded}}{	ext{Percentage change in income}}$$

Elasticity: The Responsiveness of Demand and Supply (Microeconomics Chapter 6 Study Notes)

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