Question 1

Suppose the price of a concert ticket increases from $$100 to 120$$, and as a result, the quantity demanded falls from 200 to 160 tickets. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(160-200)}{(160+200)/2} \div \frac{(120-100)}{(120+100)/2} = \frac{-40}{180} \div \frac{20}{110} = -0.222 \div 0.182 = -1.22$$

Question 2

If the absolute value of the price elasticity of demand for a product is less than 1, which of the following statements is true?

Accepted Answer

Demand is inelastic, and total revenue will increase if the price rises.

Question 3

A bakery increases the price of brownies from $$1.50 to 2.25$$, and the quantity sold drops from 72 to 60 per day. What is the price elasticity of demand using the midpoint formula?

Accepted Answer

$$\frac{(60-72)}{(60+72)/2} \div \frac{(2.25-1.50)}{(2.25+1.50)/2} = \frac{-12}{66} \div \frac{0.75}{1.875} = -0.182 \div 0.4 = -0.455$$

Question 4

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

Accepted Answer

A specific brand of breakfast cereal with many substitutes.

Question 5

If a 10% increase in the price of gasoline leads to a 3% decrease in quantity demanded, what is the price elasticity of demand for gasoline?

Accepted Answer

$$\frac{-3\%}{10\%} = -0.3$$

Question 6

A company raises the price of its product by 15%. If the demand for the product is currently elastic, what will happen to the company's total revenue?

Accepted Answer

Total revenue will decrease.

Question 7

Which of the following scenarios best illustrates the concept of cross-price elasticity of demand?

Accepted Answer

The price of coffee increases, and the demand for tea rises.

Question 8

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

Accepted Answer

They are complements.

Question 9

Suppose your income rises by 10%, and as a result, your demand for restaurant meals increases by 15%. What is the income elasticity of demand for restaurant meals?

Accepted Answer

$$\frac{15\%}{10\%} = 1.5$$

Question 10

Which of the following goods is most likely to have a negative income elasticity of demand?

Accepted Answer

Generic instant noodles.

Question 11

If the price elasticity of supply for a product is 2.0, and the price increases by 10%, by what percentage will the quantity supplied increase?

Accepted Answer

$$2.0 	imes 10\% = 20\%$$

Question 12

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

Accepted Answer

The product can be easily stored and produced with readily available inputs.

Question 13

A landscaping company can quickly hire more workers and buy more equipment when prices rise. What does this suggest about the price elasticity of supply for landscaping services?

Accepted Answer

Supply is elastic.

Question 14

If the price of donuts increases by 12% and the quantity supplied increases by 16%, what is the price elasticity of supply?

Accepted Answer

$$\frac{16\%}{12\%} = 1.33$$

Question 15

Which of the following best describes a perfectly inelastic demand curve?

Accepted Answer

A vertical line, indicating quantity demanded does not change as price changes.

Question 16

A 5% increase in the price of cookies leads to a 7% increase in the demand for candy. What is the cross-price elasticity of demand for candy with respect to the price of cookies, and what does it indicate?

Accepted Answer

$$\frac{7\%}{5\%} = 1.4$$, indicating that cookies and candy are substitutes.

Question 17

Which of the following is most likely to have an inelastic supply in the short run?

Accepted Answer

Airline flights, due to limited planes and high entry barriers.

Question 18

If the price of a normal good rises and total revenue increases, what can you infer about the price elasticity of demand for that good?

Accepted Answer

Demand is inelastic.

Question 19

Which of the following best explains why the demand for airline tickets is more elastic in the long run than in the short run?

Accepted Answer

Consumers have more time to find alternatives or adjust their travel plans.

Question 20

If the income elasticity of demand for a product is 1.8, which of the following is most likely true about the product?

Accepted Answer

It is a luxury good.

Elasticity: Measuring Responsiveness in Microeconomics

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