Question 1

Suppose the price of oranges increases by 40%, and as a result, the quantity demanded decreases by 107.69%. What is the price elasticity of demand (PED) for oranges, and how would you classify the demand?

Accepted Answer

$$PED = \frac{-107.69\%}{40\%} = -2.69225$$, which means demand is elastic.

Question 2

Which of the following is NOT a determinant of the price elasticity of demand (PED)?

Accepted Answer

The cost of production for the good

Question 3

If the price of a good falls by 18.2% and the quantity demanded increases by 40%, what is the price elasticity of demand? Is the demand elastic or inelastic?

Accepted Answer

$$PED = \frac{40\%}{-18.2\%} = -2.2$$, which means demand is elastic.

Question 4

If two goods are substitutes, what can you say about their cross-price elasticity of demand?

Accepted Answer

It is positive.

Question 5

Which scenario best describes a perfectly inelastic supply curve?

Accepted Answer

The supply curve is vertical, and the quantity supplied does not change regardless of price.

Question 6

A 10% increase in the price of milk leads to a 7.19% decrease in quantity demanded. What is the price elasticity of demand, and how would you classify the demand for milk?

Accepted Answer

$$PED = \frac{-7.19\%}{10\%} = -0.719$$, which means demand is inelastic.

Question 7

If the price of a good rises and the demand is elastic, what happens to total revenue (TR)?

Accepted Answer

Total revenue falls.

Question 8

Which of the following best explains why the demand for insulin is likely to be inelastic?

Accepted Answer

Insulin is a necessity with few or no substitutes.

Question 9

Suppose the supply of a good is perfectly elastic. What does the supply curve look like, and what does this mean for the price?

Accepted Answer

The supply curve is horizontal, and the price remains constant regardless of quantity supplied.

Question 10

If the price elasticity of supply is 0.5, how would you classify the supply, and what does this imply about producers’ responsiveness to price changes?

Accepted Answer

Supply is inelastic; producers are not very responsive to price changes.

Question 11

A market for a rare painting has a perfectly inelastic supply at 1 unit. If the demand for the painting decreases, what will happen to the equilibrium price?

Accepted Answer

The equilibrium price will fall.

Question 12

Which of the following is an example of a determinant of PED related to the share of the good in a consumer’s budget?

Accepted Answer

A consumer is less sensitive to price changes for salt because it makes up a small part of their budget.

Question 13

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

Accepted Answer

They are complements.

Question 14

Which of the following statements is TRUE regarding total revenue (TR) and price elasticity of demand (PED)?

Accepted Answer

When PED is unit elastic, total revenue is maximized.

Question 15

A 20% increase in the price of a good leads to a 34% increase in quantity supplied. What is the price elasticity of supply, and how would you classify it?

Accepted Answer

$$PES = \frac{34\%}{20\%} = 1.7$$, which means supply is elastic.

Question 16

Which of the following best describes the effect of time on the price elasticity of demand?

Accepted Answer

Demand is more elastic in the long run because consumers have more time to adjust their behavior.

Question 17

If the demand for a good is unit elastic, what happens to total revenue when the price changes?

Accepted Answer

Total revenue remains unchanged.

Question 18

Which of the following is an example of a good with elastic demand?

Accepted Answer

A specific brand of breakfast cereal with many substitutes.

Question 19

If the price of a good falls and the demand is inelastic, what happens to total revenue?

Accepted Answer

Total revenue falls.

Question 20

Which of the following best explains why the demand for fluid milk is inelastic, according to the media review analysis?

Accepted Answer

There are few alternatives and it is a necessity for many consumers.

Microeconomics: Price Elasticity of Demand and Supply – Step-by-Step Study Guidance

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