Question 1

Suppose the price of coffee increases from $$4 to 6 $$per cup, and as a result, the quantity demanded decreases from 100 to 80 cups per day. Using the midpoint method, what is the price elasticity of demand for coffee?

Accepted Answer

$$Ed = \left| \frac{-20}{90} \div 0.4 \right| = 0.56$$

Question 2

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

Accepted Answer

They are substitutes.

Question 3

A 10% increase in the price of laptops leads to a 15% decrease in the quantity demanded. What is the price elasticity of demand, and how would you classify the demand for laptops?

Accepted Answer

$$Ed = \left| \frac{-15\%}{10\%} \right| = 1.5$$, which is elastic.

Question 4

If the income elasticity of demand for used clothing is $$-0.4$$, what type of good is used clothing?

Accepted Answer

An inferior good

Question 5

Suppose the price of movie tickets rises by 20%, and the quantity supplied increases by 30%. What is the price elasticity of supply?

Accepted Answer

$$Es = \frac{30\%}{20\%} = 1.5$$

Question 6

A 5% increase in income leads to a 10% increase in the quantity demanded for organic vegetables. What is the income elasticity of demand, and how would you classify organic vegetables?

Accepted Answer

$$Ei = \frac{10\%}{5\%} = 2$$, so organic vegetables are a normal good.

Question 7

If the price elasticity of demand for gasoline is $$0.3$$, what does this imply about consumer responsiveness to price changes?

Accepted Answer

Consumers are not very responsive; demand is inelastic.

Question 8

A store increases the price of a product from $$10 to 12$$, and as a result, total revenue increases. What can you infer about the price elasticity of demand for this product?

Accepted Answer

Demand is inelastic.

Question 9

If the cross-price elasticity of demand between peanut butter and jelly is $$-0.5$$, what does this indicate?

Accepted Answer

They are complements.

Question 10

Suppose the price of a concert ticket increases from $$50 to 60$$, and the quantity demanded falls from 200 to 180 tickets. Using the midpoint method, what is the price elasticity of demand?

Accepted Answer

$$Ed = \left| \frac{180 - 200}{(180 + 200)/2} \div \frac{60 - 50}{(60 + 50)/2} \right| = \left| \frac{-20}{190} \div \frac{10}{55} \right| = \left| -0.105 \div 0.182 \right| = 0.58$$

Question 11

If the price elasticity of supply for apartments in a city is $$0.8$$, how would you classify the supply?

Accepted Answer

Inelastic

Question 12

A 15% increase in the price of Good Y causes the quantity demanded of Good X to decrease by 3%. What is the cross-price elasticity of demand, and what does it indicate?

Accepted Answer

$$Exy = \frac{-3\%}{15\%} = -0.2$$, indicating X and Y are complements.

Question 13

If the price elasticity of demand for a product is exactly 1, what does this mean for total revenue when the price changes?

Accepted Answer

Total revenue remains unchanged.

Question 14

A 20% increase in income leads to a 5% decrease in the quantity demanded for instant noodles. What is the income elasticity of demand, and what type of good are instant noodles?

Accepted Answer

$$Ei = \frac{-5\%}{20\%} = -0.25$$, so instant noodles are an inferior good.

Question 15

If the price of a good increases by 25% and the quantity supplied increases by 25%, what is the price elasticity of supply?

Accepted Answer

$$Es = \frac{25\%}{25\%} = 1$$, which is unit elastic.

Question 16

A company sells 500 units of a product at $$20 each. If the price rises to 25 $$and quantity sold falls to 400 units, what happens to total revenue?

Accepted Answer

$$TR_{old} = 20 	imes 500 = 10,000$$; $$TR_{new} = 25 	imes 400 = 10,000. $$Total revenue remains unchanged.

Question 17

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

Accepted Answer

The goods are unrelated.

Question 18

A 12% increase in the price of Good A leads to a 12% decrease in the quantity demanded. What is the price elasticity of demand, and how would you classify the demand?

Accepted Answer

$$Ed = \left| \frac{-12\%}{12\%} \right| = 1$$, which is unit elastic.

Question 19

If the price elasticity of demand for a medication is $$0.1$$, what does this suggest about the nature of the good?

Accepted Answer

It is a necessity with inelastic demand.

Question 20

A 10% increase in the price of Good B causes the quantity demanded of Good A to rise by 5%. What is the cross-price elasticity of demand, and what does it indicate?

Accepted Answer

$$Exy = \frac{5\%}{10\%} = 0.5$$, indicating A and B are substitutes.

Chapter 6: Elasticity – Microeconomics Study Notes

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