Question 1

Suppose the price of a pizza falls from $$20.50 to 19.50 $$and the quantity demanded increases from 9 to 11 pizzas per hour. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{20\%}{5\%} = 4$$

Question 2

Which of the following best describes a good with perfectly inelastic demand?

Accepted Answer

The demand curve is vertical and elasticity equals $$0.$$

Question 3

If the percentage change in quantity demanded is less than the percentage change in price, the demand for the good is:

Accepted Answer

Inelastic

Question 4

Which factor does NOT increase the price elasticity of demand for a good?

Accepted Answer

The good is a necessity with few substitutes.

Question 5

At the midpoint of a linear demand curve, the price elasticity of demand is:

Accepted Answer

$$1 ($$unit elastic)

Question 6

If a 1% decrease in price leads to a 2% increase in quantity demanded, what is the price elasticity of demand and how does total revenue change?

Accepted Answer

Elasticity is $$2 ($$elastic); total revenue increases.

Question 7

A decrease in tuition fees decreases the tutoring center's total revenue. What does this imply about the price elasticity of demand for tutoring center services?

Accepted Answer

It is greater than zero but less than $$1 ($$inelastic).

Question 8

If the cross elasticity of demand between two goods is negative, the goods are:

Accepted Answer

Complements

Question 9

Which of the following statements about income elasticity of demand is correct?

Accepted Answer

If income elasticity is less than zero, the good is inferior.

Question 10

Suppose the price of burgers (a substitute for pizza) rises. What happens to the demand for pizza and what is the sign of the cross elasticity?

Accepted Answer

Demand for pizza increases; cross elasticity is positive.

Question 11

Which of the following best describes the elasticity of supply for a good with a vertical supply curve?

Accepted Answer

Perfectly inelastic; elasticity of supply is $$0.$$

Question 12

Which of the following will make the supply of a good more elastic?

Accepted Answer

Producers can easily substitute resources used in production.

Question 13

If the supply curve passes through the origin, the elasticity of supply is:

Accepted Answer

$$1 ($$unit elastic)

Question 14

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

Accepted Answer

Income elasticity is $$1.5$$; the good is a normal good (income elastic).

Question 15

If a price cut increases total revenue, what can you conclude about the price elasticity of demand?

Accepted Answer

Demand is elastic.

Question 16

Which of the following is true about the time frame for supply decisions?

Accepted Answer

Long-run supply is more elastic than short-run supply.

Question 17

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

Accepted Answer

Total revenue increases.

Question 18

A good has a price elasticity of demand equal to infinity. Which of the following is true?

Accepted Answer

The demand curve is horizontal and demand is perfectly elastic.

Question 19

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

Accepted Answer

The goods are unrelated.

Question 20

Which of the following is the correct formula for calculating the price elasticity of supply?

Accepted Answer

$$	ext{Price elasticity of supply} = \frac{\%\,	ext{change in quantity supplied}}{\%\,	ext{change in price}}$$

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

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