Q: Which formula is used to calculate the price elasticity of demand?

$$\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$$

Q: Which formula is used to calculate the income elasticity of demand?

$$\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in income}}$$

Question 1

Which of the following best describes the price elasticity of demand?

Accepted Answer

It is a units-free measure of the responsiveness of the quantity demanded to a change in price.

Question 2

If the price of a pizza falls from $$20.50 to 19.50 $$and the quantity demanded increases from 9 to 11 pizzas per hour, what is the price elasticity of demand at the midpoint?

Accepted Answer

$$\frac{20\%}{5\%} = 4$$

Question 3

Which factor does NOT increase the elasticity of demand for a good?

Accepted Answer

The good is a necessity with few substitutes.

Question 4

A vertical demand curve represents which type of price elasticity of demand?

Accepted Answer

Perfectly inelastic demand

Question 5

If a 1 percent price cut increases the quantity sold by less than 1 percent, what is the effect on total revenue?

Accepted Answer

Total revenue decreases.

Question 6

Which formula is used to calculate the price elasticity of demand?

Accepted Answer

$$\frac{	ext{Percentage change in quantity demanded}}{	ext{Percentage change in price}}$$

Question 7

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

Accepted Answer

Exotic vacations

Question 8

If the percentage change in quantity demanded is greater than the percentage change in price, the good is said to have:

Accepted Answer

Elastic demand

Question 9

What does the total revenue test indicate if a price cut leaves total revenue unchanged?

Accepted Answer

Demand is unit elastic.

Question 10

Which of the following is true about the price elasticity of demand along a linear demand curve?

Accepted Answer

It is unit elastic at the midpoint.

Question 11

If the income elasticity of demand for a good is less than zero, what type of good is it?

Accepted Answer

Inferior good

Question 12

Which formula is used to calculate the income elasticity of demand?

Accepted Answer

$$\frac{	ext{Percentage change in quantity demanded}}{	ext{Percentage change in income}}$$

Question 13

A horizontal supply curve represents which type of elasticity of supply?

Accepted Answer

Perfectly elastic supply

Question 14

Which factor increases the elasticity of supply for a good?

Accepted Answer

The time frame for supply decision is long.

Question 15

If the cross elasticity of demand between two goods is positive, what is the relationship between the goods?

Accepted Answer

They are substitutes.

Question 16

Suppose the price of burgers (a substitute for pizza) rises. What happens to the quantity demanded of pizza?

Accepted Answer

It increases.

Question 17

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

Accepted Answer

Closeness of substitutes

Question 18

If the price elasticity of supply is zero, what does the supply curve look like?

Accepted Answer

Vertical

Question 19

A good has a price elasticity of demand greater than 1. What happens to total revenue if the price decreases?

Accepted Answer

Total revenue increases.

Question 20

Which of the following statements about elasticity is correct?

Accepted Answer

Elasticity is a ratio of percentages and is independent of units of measurement.

Elasticity in Microeconomics: Price, Income, and Supply Elasticities

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