Q: Suppose the price of a product increases by 10%, and as a result, the quantity demanded decreases by 20%. What is the price elasticity of demand, and how would you classify the demand for this product?

$$\text{Elasticity} = \frac{-20\%}{10\%} = -2$$, \,\text{Demand is elastic}$

Q: A 5% increase in income leads to a 2% increase in the quantity demanded of a good. What is the income elasticity of demand, and how is this good classified?

$$\text{Income Elasticity} = \frac{2\%}{5\%} = 0.4$$, \,\text{Necessity}$

Q: Suppose the price of good X increases by 10%, and the quantity demanded of good Y decreases by 7%. What is the cross-price elasticity of demand for Y with respect to X?

$$\text{CPE} = \frac{-7\%}{10\%} = -0.7$$

Question 1

Suppose the price of a product increases by 10%, and as a result, the quantity demanded decreases by 20%. What is the price elasticity of demand, and how would you classify the demand for this product?

Accepted Answer

$$	ext{Elasticity} = \frac{-20\%}{10\%} = -2$$, \,	ext{Demand is elastic}$

Question 2

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

Accepted Answer

Insulin for diabetics

Question 3

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

Accepted Answer

They are substitutes

Question 4

A 5% increase in income leads to a 2% increase in the quantity demanded of a good. What is the income elasticity of demand, and how is this good classified?

Accepted Answer

$$	ext{Income Elasticity} = \frac{2\%}{5\%} = 0.4$$, \,	ext{Necessity}$

Question 5

If the price elasticity of supply for a product is 0.5, what does this indicate about the producer's response to price changes?

Accepted Answer

Supply is inelastic; producers increase quantity supplied by a smaller percentage than the price increase

Question 6

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

Accepted Answer

The good has many close substitutes

Question 7

If a firm raises the price of its product and total revenue increases, what can you conclude about the price elasticity of demand for the product?

Accepted Answer

Demand is inelastic ($$|E_d| \u003c 1)$$

Question 8

Suppose the price of good X increases by 10%, and the quantity demanded of good Y decreases by 7%. What is the cross-price elasticity of demand for Y with respect to X?

Accepted Answer

$$	ext{CPE} = \frac{-7\%}{10\%} = -0.7$$

Question 9

Which of the following best explains why the price elasticity of supply is generally more elastic in the long run than in the short run?

Accepted Answer

Producers have more time to adjust their production processes and resources

Question 10

A perfectly inelastic demand curve is represented by which of the following?

Accepted Answer

A vertical line on a price-quantity graph

Question 11

If the price of a necessity increases, what is the most likely effect on quantity demanded?

Accepted Answer

Quantity demanded decreases by a small percentage

Question 12

Which of the following statements is true regarding the elasticity along a straight-line demand curve?

Accepted Answer

Elasticity is higher at higher prices and lower quantities

Question 13

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good

Question 14

A 10% decrease in the price of a product leads to a 10% increase in quantity demanded. What is the price elasticity of demand, and what does this imply about total revenue?

Accepted Answer

$$	ext{Elasticity} = \frac{10\%}{-10\%} = -1$$, \,	ext{Total revenue remains unchanged}$

Question 15

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

Accepted Answer

A firm that can easily hire more workers and expand production

Question 16

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

Accepted Answer

The goods are complements

Question 17

A 5% increase in the price of gasoline leads to a 1% decrease in the quantity demanded. What is the price elasticity of demand for gasoline, and what does this suggest about consumer behavior?

Accepted Answer

$$	ext{Elasticity} = \frac{-1\%}{5\%} = -0.2$$, \,	ext{Demand is inelastic}$

Question 18

Which of the following best describes a perfectly elastic supply curve?

Accepted Answer

A horizontal line on a price-quantity graph

Question 19

If a good takes up a large share of a consumer's budget, what can you say about the price elasticity of demand for that good?

Accepted Answer

Demand is likely to be more elastic

Elasticity: The Responsiveness of Demand and Supply

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