Q: Suppose the price of a concert ticket increases by 20%, and as a result, the quantity demanded falls by 10%. What is the price elasticity of demand, and how would you classify the demand for concert tickets in this case?

$$\text{Elasticity} = \frac{-10\%}{20\%} = -0.5$$, which is inelastic demand.

Q: A 35% increase in the price of sugary soft drinks in Philadelphia led to a 45% decrease in quantity demanded. What is the price elasticity of demand, and is demand elastic or inelastic?

$$\text{Elasticity} = \frac{-45\%}{35\%} = -1.29$$, which is elastic demand.

Q: Which formula correctly represents the price elasticity of supply?

$$\text{Elasticity of Supply} = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}}$$

Question 1

Suppose the price of a concert ticket increases by 20%, and as a result, the quantity demanded falls by 10%. What is the price elasticity of demand, and how would you classify the demand for concert tickets in this case?

Accepted Answer

$$	ext{Elasticity} = \frac{-10\%}{20\%} = -0.5$$, which is inelastic demand.

Question 2

A city imposes a per-unit tax on a product with highly elastic demand. Who bears the larger burden of the tax?

Accepted Answer

Producers bear the larger burden of the tax.

Question 3

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

Accepted Answer

They are substitute goods.

Question 4

A 35% increase in the price of sugary soft drinks in Philadelphia led to a 45% decrease in quantity demanded. What is the price elasticity of demand, and is demand elastic or inelastic?

Accepted Answer

$$	ext{Elasticity} = \frac{-45\%}{35\%} = -1.29$$, which is elastic demand.

Question 5

Which of the following factors does NOT increase the price elasticity of demand for a good?

Accepted Answer

The good is a necessity with few substitutes.

Question 6

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

Accepted Answer

An inferior good.

Question 7

A company raises the price of its app-enabled restaurant reservation service. If demand is elastic, what will happen to the company's total revenue?

Accepted Answer

Total revenue will decrease.

Question 8

Which formula correctly represents the price elasticity of supply?

Accepted Answer

$$	ext{Elasticity of Supply} = \frac{\%\ 	ext{change in quantity supplied}}{\%\ 	ext{change in price}}$$

Question 9

If the demand curve for a product is vertical, what is the price elasticity of demand?

Accepted Answer

Perfectly inelastic; elasticity is 0.

Question 10

A behavioral economist pays people to exercise more. If the price elasticity of supply for gym workouts is 0.15, what does this imply?

Accepted Answer

A 1% increase in payment leads to a 0.15% increase in workouts; supply is inelastic.

Question 11

Which of the following best describes unit-elastic demand?

Accepted Answer

The percentage change in quantity demanded equals the percentage change in price.

Question 12

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

Accepted Answer

The goods are complements.

Question 13

A firm wants to maximize its total revenue. According to the theory of elasticity, at what point on the demand curve should it set its price?

Accepted Answer

Where demand is unit elastic.

Question 14

Which of the following is most likely to have a highly elastic demand?

Accepted Answer

A luxury car with many close substitutes.

Question 15

If the price elasticity of demand for airline tickets is 8, what will happen to total revenue if airlines increase ticket prices?

Accepted Answer

Total revenue will decrease.

Question 16

Which of the following statements about the long run and short run is correct regarding elasticity?

Accepted Answer

Elasticity is greater in the long run than in the short run.

Question 17

If a good takes up a small share of a consumer's budget, what can you infer about its price elasticity of demand?

Accepted Answer

It is likely to be inelastic.

Question 18

Suppose the price of Tesla vehicles in Hong Kong rises from $$75,000 to 130$$,000, and the quantity demanded falls from 500 to 30 per month. What is the price elasticity of demand (using the midpoint formula)?

Accepted Answer

$$	ext{Elasticity} = \frac{(30-500)/((30+500)/2)}{(130,000-75,000)/((130,000+75,000)/2)} \approx -2.8$$

Question 19

Which of the following best describes perfectly elastic supply?

Accepted Answer

The supply curve is horizontal; any decrease in price drops quantity supplied to zero.

Study Guide: Demand and Supply Elasticity in Microeconomics

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