Question 1

Which of the following best describes the concept of elasticity in economics?

Accepted Answer

Elasticity is a unitless measure of responsiveness of a relationship to a change in a variable.

Question 2

Suppose the price of a product increases from $$20 to 25$$, and the quantity demanded decreases from 40 to 20. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$E_d = \frac{(20-40) \div (20+40)}{(25-20) \div (25+20)} = \frac{-20/60}{5/45} = \frac{-0.333}{0.111} = -3$$

Question 3

If the absolute value of the price elasticity of demand $$|E_d| is $$less than 1, which of the following is true?

Accepted Answer

Demand is inelastic.

Question 4

A 10% increase in the price of a necessity good leads to a 2% decrease in quantity demanded. What does this imply about the price elasticity of demand for this good?

Accepted Answer

The demand is inelastic because $$|E_d| = 0.2.$$

Question 5

Which of the following scenarios would most likely result in a perfectly inelastic demand curve?

Accepted Answer

A life-saving medication with no substitutes.

Question 6

If a price decrease leads to an increase in total revenue, what can you conclude about the price elasticity of demand?

Accepted Answer

Demand is elastic.

Question 7

Which factor is most likely to make the demand for a product more elastic?

Accepted Answer

The product has many close substitutes.

Question 8

Suppose the price of cheese dip increases from $$5 to 10$$, and the quantity demanded of potato chips decreases from 10 to 2. What is the cross elasticity of demand, and what does it indicate about the relationship between the two goods?

Accepted Answer

$$E_c = \frac{(2-10) \div (2+10)}{(10-5) \div (10+5)} = \frac{-8/12}{5/15} = \frac{-0.667}{0.333} = -2$$; they are complements.

Question 9

Which of the following is true about the midpoint formula for calculating elasticity?

Accepted Answer

It uses the average of the two values as the base for percentage change.

Question 10

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

Accepted Answer

Supply is elastic.

Question 11

A firm faces a perfectly elastic supply curve. What does this mean for the price elasticity of supply?

Accepted Answer

$$E_s = \infty$$

Question 12

Which of the following would most likely increase the elasticity of supply for a product?

Accepted Answer

Producers have more time to adjust their production methods.

Question 13

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

Accepted Answer

Inferior good

Question 14

A 5% increase in income leads to a 10% increase in the quantity demanded of a good. What is the income elasticity of demand, and what does it indicate?

Accepted Answer

$$E_y = \frac{10\%}{5\%} = 2$$; the good is a luxury.

Question 15

Which of the following statements about total revenue and elasticity is correct?

Accepted Answer

If demand is inelastic, a price increase will increase total revenue.

Question 16

Which of the following is NOT a factor that influences the elasticity of demand?

Accepted Answer

The cost of production for the seller

Question 17

If a supply curve passes through the origin, what is the price elasticity of supply at every point on the curve?

Accepted Answer

$$E_s = 1$$

Question 18

Which of the following best explains why the price elasticity of demand changes along a straight-line demand curve?

Accepted Answer

Because the percentage changes in price and quantity differ at different points.

Question 19

A country has a low average income and spends a large share of its budget on food. What does this imply about the income elasticity of demand for food in that country?

Accepted Answer

Food is likely to be income elastic.

Elasticity in Microeconomics: Concepts, Measurement, and Applications

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