Q: If a price cut leaves total revenue unchanged, what is the price elasticity of demand?

Unit elastic ($$\text{elasticity} = 1).$$

Question 1

Suppose 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 using the midpoint formula?

Accepted Answer

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

Question 2

Which of the following best describes a good with perfectly inelastic demand?

Accepted Answer

The demand curve is vertical and elasticity equals 0.

Question 3

If the percentage change in quantity demanded is less than the percentage change in price, the price elasticity of demand is:

Accepted Answer

Less than 1 and demand is inelastic.

Question 4

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

Accepted Answer

The good is a necessity with few substitutes.

Question 5

At the midpoint of a linear demand curve, the price elasticity of demand is:

Accepted Answer

Equal to 1 (unit elastic).

Question 6

If a 1 percent price cut increases the quantity sold by more than 1 percent, what happens to total revenue?

Accepted Answer

Total revenue increases because demand is elastic.

Question 7

A good has an income elasticity of demand less than zero. This means the good is:

Accepted Answer

An inferior good.

Question 8

If the cross elasticity of demand between two goods is positive, the goods are:

Accepted Answer

Substitutes.

Question 9

Which of the following best describes the elasticity of supply for a good with a vertical supply curve?

Accepted Answer

Perfectly inelastic; elasticity of supply is 0.

Question 10

Which of the following scenarios would most likely result in a highly elastic supply?

Accepted Answer

A product that can be produced using many easily substitutable resources.

Question 11

Suppose the price of a good increases by 10% and the quantity supplied increases by 20%. What is the elasticity of supply?

Accepted Answer

$$\frac{20\%}{10\%} = 2$$, so supply is elastic.

Question 12

Which of the following statements about the time frame for supply decisions is correct?

Accepted Answer

Long-run supply is more elastic than short-run supply.

Question 13

If a price cut leaves total revenue unchanged, what is the price elasticity of demand?

Accepted Answer

Unit elastic ($$	ext{elasticity} = 1).$$

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 type of good is it?

Accepted Answer

$$\frac{10\%}{5\%} = 2$$, so it is a normal good and income elastic.

Question 15

Which of the following is true about the relationship between total revenue and elasticity?

Accepted Answer

When demand is elastic, a price cut increases total revenue.

Question 16

A pharmaceutical company faces a perfectly inelastic demand for a life-saving drug. If it raises the price, what happens to the quantity demanded?

Accepted Answer

The quantity demanded remains unchanged.

Question 17

If the price elasticity of demand for a good is 0.5, which of the following is true?

Accepted Answer

Demand is inelastic; a price increase will increase total revenue.

Question 18

Which of the following would make the demand for gasoline more elastic?

Accepted Answer

Availability of electric cars as close substitutes.

Question 19

If the cross elasticity of demand between two goods is negative, what does this indicate?

Accepted Answer

The goods are complements.

Question 20

A farmer can easily switch between growing wheat and corn. If the price of corn rises, what will happen to the supply of wheat, and why?

Accepted Answer

The supply of wheat will decrease because resources are easily substituted.

Elasticity in Microeconomics: Price, Income, Cross, and Supply Elasticities

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