Question 1

Suppose the price of gasoline falls by 20% and the quantity demanded increases by 10%. What is the price elasticity of demand for gasoline, and is demand elastic or inelastic?

Accepted Answer

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

Question 2

Which of the following best explains why the demand for insulin is highly inelastic?

Accepted Answer

Insulin is a necessity with no close substitutes.

Question 3

If the price of a product increases by 15% and the quantity supplied increases by 30%, what is the price elasticity of supply?

Accepted Answer

$$\frac{30\%}{15\%} = 2$$, elastic

Question 4

A discount airline is considering entering a new city. Should they prefer a market with high or low price elasticity of demand, and why?

Accepted Answer

High elasticity, because a price cut will lead to a large increase in quantity demanded.

Question 5

If the income elasticity of demand for instant noodles is $$-0.8$$, what type of good is it?

Accepted Answer

Inferior good

Question 6

The price of Good A falls from $$5 to 4$$, and the quantity demanded of Good B rises from 60 to 100 units. Using the midpoint formula, what is the cross-price elasticity of demand of Good B with respect to the price of Good A?

Accepted Answer

$$\frac{(100-60)/80}{(4-5)/4.5} = \frac{0.5}{-0.222} = -2.25$$

Question 7

Which of the following scenarios would most likely result in a highly elastic demand for a product?

Accepted Answer

There are many close substitutes available.

Question 8

If the price elasticity of demand for a good is $$|E_d| = 0$$, what does this imply about the demand curve?

Accepted Answer

The demand curve is perfectly inelastic (vertical).

Question 9

Suppose the price of milk increases and the quantity of cookies demanded decreases. What does this indicate about the relationship between milk and cookies?

Accepted Answer

They are complements.

Question 10

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

Accepted Answer

Easily available inputs

Question 11

If the price of a good rises by 10% and the quantity demanded falls by 25%, what is the price elasticity of demand? Is demand elastic or inelastic?

Accepted Answer

$$\frac{-25\%}{10\%} = -2.5$$, elastic

Question 12

Which of the following best describes the difference between elasticity and slope for a demand curve?

Accepted Answer

Elasticity measures percentage changes, while slope measures absolute changes.

Question 13

If the income elasticity of demand for steak is $$1.5$$, what does this imply?

Accepted Answer

Steak is a normal, income-elastic good.

Question 14

A successful drug bust reduces the supply of illegal drugs. If demand is highly inelastic, what happens to total drug dealer revenue?

Accepted Answer

Revenue increases because the price rises more than quantity falls.

Question 15

Which of the following goods is most likely to have a perfectly elastic demand curve?

Accepted Answer

A brand of cereal in a market with many identical substitutes

Question 16

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

Accepted Answer

The goods are substitutes.

Question 17

Suppose the price of Good A is cut from $$5 to 4$$, and the quantity supplied decreases from 100 to 95 units. Using the midpoint formula, what is the price elasticity of supply?

Accepted Answer

$$\frac{(95-100)/97.5}{(4-5)/4.5} = \frac{-0.051}{-0.222} = 0.23$$

Question 18

Which of the following would make the demand for a product more elastic over time?

Accepted Answer

Consumers have more time to find substitutes.

Question 19

If the price elasticity of demand for a good is exactly $$-1$$, what does this imply about total revenue when price changes?

Accepted Answer

Total revenue remains unchanged.

lecture 3: Elasticity in Microeconomics: Demand, Supply, and Other Elasticities

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