Question 1

Suppose the price of a concert ticket increases from $$\50$ to $$\$$60$$, and as a result, the quantity demanded falls from $$200 to$$ $$150. $$Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(150-200)}{(150+200)/2} \div \frac{(60-50)}{(60+50)/2} = \frac{-50}{175} \div \frac{10}{55} = -0.286 \div 0.182 = -1.57$$

Question 2

If the price elasticity of demand for gasoline is $$0.3$$, which of the following statements is correct?

Accepted Answer

Demand for gasoline is inelastic because $$0.3 \u003c 1.$$

Question 3

A company raises the price of its product from $$\10$ to $$\$$12. As a $$result, total revenue increases. What can you conclude about the price elasticity of demand for this product?

Accepted Answer

Demand is inelastic because total revenue increased when price increased.

Question 4

If the cross-price elasticity of demand between tea and coffee is $$+0.8$$, what does this imply?

Accepted Answer

Tea and coffee are substitutes because the cross-price elasticity is positive.

Question 5

Which of the following best describes a normal good?

Accepted Answer

A good with a positive income elasticity of demand.

Question 6

Suppose the income elasticity of demand for used clothing is $$-0.5. $$What does this indicate?

Accepted Answer

Used clothing is an inferior good because the income elasticity is negative.

Question 7

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

Accepted Answer

$$\frac{-10\%}{20\%} = -0.5$$

Question 8

A $$5\%$$ increase in the price of bread leads to a $$5\%$$ decrease in quantity demanded. What is the price elasticity of demand, and how is demand classified?

Accepted Answer

$$\frac{-5\%}{5\%} = -1$$, so demand is unit elastic.

Question 9

If the cross-price elasticity of demand between peanut butter and jelly is $$-0.6$$, what does this mean?

Accepted Answer

Peanut butter and jelly are complements because the cross-price elasticity is negative.

Question 10

A store lowers the price of a product, and total revenue decreases. What does this indicate about the price elasticity of demand?

Accepted Answer

Demand is inelastic because total revenue falls when price falls.

Question 11

Which of the following scenarios best illustrates elastic demand?

Accepted Answer

A $$10\%$$ increase in price leads to a $$20\%$$ decrease in quantity demanded.

Question 12

If the price elasticity of demand for a product is $$1.2$$, what will happen to total revenue if the firm increases the price?

Accepted Answer

Total revenue will decrease because demand is elastic.

Question 13

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

Accepted Answer

$$\frac{10\%}{15\%} = 0.67$$, so laptops are a normal good.

Question 14

Which of the following is NOT a step in the midpoint formula for calculating elasticity?

Accepted Answer

Multiply the change in quantity by the change in price.

Question 15

If the price elasticity of demand for a medication is $$0.05$$, what does this suggest about consumer behavior?

Accepted Answer

Consumers are not very responsive to price changes; demand is highly inelastic.

Question 16

A $$12\%$$ increase in the price of movie tickets causes a $$6\%$$ decrease in the quantity demanded. What is the price elasticity of demand, and how is demand classified?

Accepted Answer

$$\frac{-6\%}{12\%} = -0.5$$, so demand is inelastic.

Question 17

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

Accepted Answer

The goods are unrelated; a price change in one does not affect the quantity demanded of the other.

Question 18

A $$10\%$$ decrease in income leads to a $$15\%$$ decrease in the quantity demanded of organic food. What is the income elasticity of demand, and what type of good is organic food?

Accepted Answer

$$\frac{-15\%}{-10\%} = 1.5$$, so organic food is a normal good.

Question 19

Which of the following best describes unit elastic demand?

Accepted Answer

The percentage change in quantity demanded equals the percentage change in price.

Question 20

A $$20\%$$ increase in the price of Good X causes the quantity demanded of Good Y to increase by $$10\%. $$What is the cross-price elasticity of demand, and what does this indicate about the relationship between Good X and Good Y?

Accepted Answer

$$\frac{10\%}{20\%} = 0.5$$, so Good X and Good Y are substitutes.

Chapter 6: Elasticity – Microeconomics Study Notes

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