Question 1

Which formula correctly expresses the price elasticity of demand using the midpoint method?

Accepted Answer

$$E_d = \left| \frac{Q_2$ - Q_1$}{\frac{Q_1$ + Q_2$}{2}} \div \frac{P_2$ - P_1$}{\frac{P_1$ + P_2$}{2}} \right|$$

Question 2

A coffee cart raises its price from 30,000 VND to 36,000 VND. If sales drop from 100 to 70 cups per day, what happens to total revenue?

Accepted Answer

Total revenue falls because the drop in quantity demanded outweighs the price increase.

Question 3

If the price elasticity of demand for a product is $$E_d = 1.60$$, what does this imply about demand?

Accepted Answer

Demand is elastic; consumers are highly responsive to price changes.

Question 4

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

Accepted Answer

Insulin for diabetics

Question 5

A 10% increase in the price of cigarettes reduces youth smoking by 12%. What is the price elasticity of demand for youth smokers, and what is the primary policy effect?

Accepted Answer

$$E_d = 1.20$$; the primary effect is a cut in consumption.

Question 6

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

Accepted Answer

The good has many close substitutes.

Question 7

If the price elasticity of supply is greater than 1, what does this indicate?

Accepted Answer

Supply is elastic; producers can adjust output easily when prices change.

Question 8

A university raises tuition by 12%. If the estimated price elasticity of demand is $$E_d = 0.45$$, what happens to total revenue?

Accepted Answer

Total revenue rises because demand is inelastic.

Question 9

Which of the following best describes the relationship between elasticity and the slope of a linear demand curve?

Accepted Answer

Slope is constant, but elasticity changes at every point along the curve.

Question 10

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

Accepted Answer

The goods are complements.

Question 11

A factory is operating at full capacity. What can you infer about the price elasticity of supply?

Accepted Answer

Supply is inelastic because there is no spare capacity.

Question 12

If a good has an income elasticity of demand less than zero, what type of good is it?

Accepted Answer

Inferior good

Question 13

Which scenario best illustrates the paradox of agriculture?

Accepted Answer

A bumper crop causes prices to fall so much that total farm revenue decreases.

Question 14

If the demand for a product is unit elastic, what happens to total revenue when the price changes?

Accepted Answer

Total revenue remains unchanged.

Question 15

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

Accepted Answer

Production technology

Question 16

A 15% cut in airline fares leads to a 27% increase in quantity demanded. What is the price elasticity of demand, and what happens to total revenue?

Accepted Answer

$$E_d = 1.80$$; total revenue rises.

Question 17

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

Accepted Answer

A horizontal line; $$E_d = \infty$$

Question 18

If a good is narrowly defined (e.g., a specific brand), how does this affect its price elasticity of demand?

Accepted Answer

Demand is more elastic because consumers can easily switch to alternatives.

Question 19

Which of the following statements about the time horizon and elasticity is correct?

Accepted Answer

Demand and supply are more elastic in the long run.

Elasticity and Its Application: Microeconomics Study Guide

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