Q: Which formula correctly represents the cross-price elasticity of demand?

$$\frac{\text{Percentage change in quantity demanded of Good A}}{\text{Percentage change in price of Good B}}$$

Question 1

Which of the following best describes the price elasticity of demand?

Accepted Answer

It measures the responsiveness of quantity demanded to a change in price, based on percentage changes.

Question 2

If the price of a product increases by 10% and the quantity demanded decreases by 20%, what is the price elasticity of demand?

Accepted Answer

$$\frac{-20\%}{10\%} = -2$$

Question 3

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

Accepted Answer

Gasoline

Question 4

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

$$\frac{140-100}{(140+100)/2} \div \frac{6-8}{(6+8)/2} = \frac{40}{120} \div \frac{-2}{7} = 0.333 \div -0.286 = -1.17$$

Question 5

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

Accepted Answer

There are many close substitutes available.

Question 6

If a decrease in price leads to a proportionally larger increase in quantity demanded, what happens to total revenue?

Accepted Answer

Total revenue increases.

Question 7

Which scenario best illustrates perfectly inelastic demand?

Accepted Answer

A vertical demand curve where quantity demanded does not change as price changes.

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 cross-price elasticity of demand?

Accepted Answer

$$\frac{	ext{Percentage change in quantity demanded of Good A}}{	ext{Percentage change in price of Good B}}$$

Question 10

If the income elasticity of demand for wheat is low and the price elasticity of demand for wheat is inelastic, what happens when farm productivity increases dramatically?

Accepted Answer

The price of wheat falls sharply and fewer people choose to farm.

Question 11

Which of the following is true about the price elasticity of supply in the short run for agricultural products?

Accepted Answer

It is perfectly inelastic because output cannot be changed quickly.

Question 12

A city enacts a soda tax to reduce consumption and raise revenue. If demand for soda is highly elastic, what is the likely outcome?

Accepted Answer

Soda consumption will decrease significantly, but tax revenue will be lower than expected.

Question 13

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

Accepted Answer

The cost of production for the good

Question 14

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

Accepted Answer

Beer and wine are substitutes.

Question 15

Suppose the price elasticity of supply for oil is very low in the short run. What happens when demand for oil suddenly increases?

Accepted Answer

The price of oil rises sharply because quantity supplied cannot adjust quickly.

Question 16

Which formula is used to calculate the price elasticity of supply?

Accepted Answer

$$\frac{	ext{Percentage change in quantity supplied}}{	ext{Percentage change in price}}$$

Question 17

If a good is a small portion of a consumer's budget, how does this affect the price elasticity of demand?

Accepted Answer

Demand is likely to be inelastic.

Question 18

Which of the following statements is true about unit elastic demand?

Accepted Answer

A percentage change in price leads to an equal percentage change in quantity demanded.

Question 19

A vertical supply curve represents which type of price elasticity of supply?

Accepted Answer

Perfectly inelastic supply

Question 20

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

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

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