Question 1

Which of the following best describes the concept of price elasticity of demand (PED)?

Accepted Answer

The responsiveness of quantity demanded to a change in price, measured as $$ PED = \frac{\%\ 	ext{change in quantity demanded}}{\%\ 	ext{change in price}} .$$

Question 2

Suppose the price of Netflix Premium increases from $$20 to 25 $$and the number of subscribers falls from 10 million to 9.9 million. Using the midpoint method, what is the price elasticity of demand?

Accepted Answer

$$ PED = \frac{0.1/9.95}{5/22.5} = -0.045  ($$inelastic)

Question 3

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

Accepted Answer

Snake antivenin for a rare snake bite.

Question 4

If the absolute value of the price elasticity of demand for gasoline is 0.5, how would you classify its demand?

Accepted Answer

Inelastic

Question 5

Which determinant would make the demand for a good more elastic?

Accepted Answer

There are many close substitutes available.

Question 6

A 20% increase in the price of a toll road leads to a 40% decrease in the quantity of crossings. What is the price elasticity of demand, and how is demand classified?

Accepted Answer

$$ PED = \frac{-40\%}{20\%} = -2  ($$elastic)

Question 7

If a good has a price elasticity of demand equal to zero, what does this imply about consumer behavior?

Accepted Answer

Consumers will buy the same quantity regardless of price changes.

Question 8

Which of the following is an example of a good with a positive cross-price elasticity of demand?

Accepted Answer

Netflix and Disney+ subscriptions.

Question 9

If the income elasticity of demand for vacations is greater than 1, what type of good are vacations?

Accepted Answer

Luxury good

Question 10

A 10% increase in income leads to a 5% increase in the quantity demanded of a good. What is the income elasticity of demand, and how is the good classified?

Accepted Answer

$$ IED = \frac{5\%}{10\%} = 0.5  ($$normal necessity)

Question 11

If total revenue increases when the price of a good increases, what does this indicate about the price elasticity of demand for the good?

Accepted Answer

Demand is inelastic.

Question 12

Which of the following best describes the price elasticity of supply (PES)?

Accepted Answer

The responsiveness of quantity supplied to a change in price, measured as $$ PES = \frac{\%\ 	ext{change in quantity supplied}}{\%\ 	ext{change in price}} .$$

Question 13

Which factor is the single most common determinant of the price elasticity of supply?

Accepted Answer

The availability of resources.

Question 14

If the price elasticity of supply is infinite, what does this mean for the supply curve?

Accepted Answer

The supply curve is perfectly elastic; any price change leads to an infinite change in quantity supplied.

Question 15

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

Accepted Answer

The goods are complements.

Question 16

A 10% increase in the price of milk causes a 5% decrease in the quantity of Oreos demanded. What is the cross-price elasticity of demand, and what does it indicate?

Accepted Answer

$$ CED = \frac{-5\%}{10\%} = -0.5  ($$complements)

Question 17

Which of the following is most likely to have an income elasticity of demand less than zero?

Accepted Answer

Junk food

Question 18

If a good is classified as unit elastic, what is the value of its price elasticity of demand?

Accepted Answer

$$ |PED| = 1 $$

Question 19

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

Accepted Answer

A longer period of time after a price change.

Question 20

If the price of a good increases and total revenue decreases, what does this indicate about the price elasticity of demand?

Accepted Answer

Demand is elastic.

Elasticity: Measuring Responsiveness in Microeconomics

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