Q: Suppose the price of a concert ticket increases by 20%, and as a result, the quantity demanded falls by 10%. What is the price elasticity of demand, and how would you classify the demand for concert tickets in this case?

$$\text{Elasticity} = \frac{-10\%}{20\%} = -0.5$$, which means demand is inelastic.

Q: The price of Tesla vehicles in Hong Kong increased from $$75,000 to 130$$,000, and the quantity demanded fell from 500 to 30 per month. Calculate the price elasticity of demand using the midpoint formula.

$$\text{Elasticity} = \frac{(30-500)/((30+500)/2)}{(130,000-75,000)/((130,000+75,000)/2)} \approx -2.8$$

Q: A 35% increase in the price of sugary soft drinks in Philadelphia led to a 45% decrease in purchases. What is the price elasticity of demand, and is demand elastic or inelastic?

$$\text{Elasticity} = \frac{-45\%}{35\%} = -1.3$$, so demand is elastic.

Question 1

Suppose the price of a concert ticket increases by 20%, and as a result, the quantity demanded falls by 10%. What is the price elasticity of demand, and how would you classify the demand for concert tickets in this case?

Accepted Answer

$$	ext{Elasticity} = \frac{-10\%}{20\%} = -0.5$$, which means demand is inelastic.

Question 2

If the demand for a product is elastic, what will happen to total revenue if the firm increases the price?

Accepted Answer

Total revenue will decrease.

Question 3

Which of the following factors would make the demand for a good more elastic?

Accepted Answer

The good has many close substitutes.

Question 4

A city imposes a per-unit tax on a product with highly elastic demand. Who bears the larger burden of the tax?

Accepted Answer

Producers bear the larger burden.

Question 5

If the cross price elasticity of demand between two goods is positive, what does this imply about the relationship between the goods?

Accepted Answer

They are substitutes.

Question 6

The price of Tesla vehicles in Hong Kong increased from $$75,000 to 130$$,000, and the quantity demanded fell from 500 to 30 per month. Calculate the price elasticity of demand using the midpoint formula.

Accepted Answer

$$	ext{Elasticity} = \frac{(30-500)/((30+500)/2)}{(130,000-75,000)/((130,000+75,000)/2)} \approx -2.8$$

Question 7

Which of the following best describes perfectly inelastic demand?

Accepted Answer

The demand curve is vertical, and quantity demanded does not change as price changes.

Question 8

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

Accepted Answer

An inferior good.

Question 9

A 35% increase in the price of sugary soft drinks in Philadelphia led to a 45% decrease in purchases. What is the price elasticity of demand, and is demand elastic or inelastic?

Accepted Answer

$$	ext{Elasticity} = \frac{-45\%}{35\%} = -1.3$$, so demand is elastic.

Question 10

Which of the following statements about the relationship between price elasticity of demand and total revenue is correct?

Accepted Answer

When demand is elastic, a price increase will decrease total revenue.

Question 11

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

Accepted Answer

The cost of producing the good.

Question 12

If the price elasticity of supply for gym workouts is 0.15, what does this imply about the supply of gym workouts?

Accepted Answer

Supply is inelastic; quantity supplied responds little to price changes.

Question 13

A city wants to maximize revenue from bridge tolls. According to elasticity theory, where should it set the toll?

Accepted Answer

In the inelastic portion of the demand curve.

Question 14

Which formula correctly expresses the price elasticity of demand?

Accepted Answer

$$	ext{Elasticity} = \frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}}$$

Question 15

If the cross price elasticity of demand between good X and good Y is $$-0.8$$, what does this indicate?

Accepted Answer

Goods X and Y are complements.

Question 16

Which of the following best describes perfectly elastic supply?

Accepted Answer

The supply curve is horizontal, and quantity supplied falls to zero with any price decrease.

Question 17

If the price elasticity of supply is greater in the long run than in the short run, what does this imply?

Accepted Answer

Producers can adjust more fully to price changes over time.

Question 18

A 1% increase in airline ticket prices leads to an 8% decrease in quantity demanded. What is the price elasticity of demand, and what does this mean for airline revenues if prices rise?

Accepted Answer

$$	ext{Elasticity} = -8$$, demand is elastic, so revenues will decrease.

Question 19

Which of the following is true about unit-elastic demand?

Accepted Answer

Total revenue remains unchanged when price changes.

Elasticity in Microeconomics: Demand and Supply Responsiveness

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