Question 1

Suppose the price of a product increases from $$10 to 12$$, and as a result, the quantity demanded falls from 100 units to 80 units. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(80-100)}{(80+100)/2} \div \frac{(12-10)}{(12+10)/2} = \frac{-20}{90} \div \frac{2}{11} = -0.222 \div 0.182 = -1.22$$

Question 2

If the absolute value of the price elasticity of demand for a good is 0.5, which of the following best describes the demand for this good?

Accepted Answer

Demand is inelastic because the percentage change in quantity demanded is less than the percentage change in price.

Question 3

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

Accepted Answer

The product has many close substitutes available.

Question 4

A pharmaceutical company increases the price of a life-saving drug. The quantity demanded does not change. What is the price elasticity of demand for this drug?

Accepted Answer

Zero (perfectly inelastic)

Question 5

If a firm wants to increase its total revenue and knows that the demand for its product is elastic, what should it do?

Accepted Answer

Decrease the price, because the percentage increase in quantity demanded will be greater than the percentage decrease in price.

Question 6

Which of the following statements about the price elasticity of demand is correct?

Accepted Answer

It is always negative, but economists often use the absolute value for interpretation.

Question 7

Suppose the income elasticity of demand for restaurant meals is 1.5. What does this imply about restaurant meals?

Accepted Answer

They are luxury goods, because the percentage change in quantity demanded is greater than the percentage change in income.

Question 8

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

Accepted Answer

They are complements.

Question 9

A 10% increase in the price of good A leads to a 5% increase in the quantity demanded of good B. What is the cross-price elasticity of demand, and what does it indicate?

Accepted Answer

$$\frac{5\%}{10\%} = 0.5$$, indicating that goods A and B are substitutes.

Question 10

Which of the following best explains why the price elasticity of supply is usually positive?

Accepted Answer

As price increases, producers are willing to supply more of the good.

Question 11

Suppose the price of a good rises from $$20 to 24$$, and the quantity supplied increases from 50 to 70 units. Using the midpoint formula, what is the price elasticity of supply?

Accepted Answer

$$\frac{(70-50)}{(70+50)/2} \div \frac{(24-20)}{(24+20)/2} = \frac{20}{60} \div \frac{4}{22} = 0.333 \div 0.182 = 1.83$$

Question 12

Which of the following would make the supply of a product more elastic in the long run?

Accepted Answer

Firms have more time to hire workers and acquire resources.

Question 13

If the price elasticity of supply is less than 1, which of the following is true?

Accepted Answer

Supply is inelastic; the percentage change in quantity supplied is less than the percentage change in price.

Question 14

A decrease in the price of a necessity good is likely to have what effect on total revenue, assuming demand is inelastic?

Accepted Answer

Total revenue will decrease because the percentage increase in quantity demanded is less than the percentage decrease in price.

Question 15

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

Accepted Answer

Inferior good

Question 16

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

Accepted Answer

The cost of inputs used in production

Question 17

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

Accepted Answer

The goods are unrelated; a change in the price of one does not affect the demand for the other.

Question 18

A firm faces a downward-sloping linear demand curve. At high prices and low quantities, the price elasticity of demand is likely to be:

Accepted Answer

Elastic, because the percentage change in quantity is large relative to the percentage change in price.

Question 19

Which of the following best describes the relationship between total revenue and price elasticity of demand?

Accepted Answer

When demand is elastic, a decrease in price increases total revenue.

Unit 5: Elasticity – Price Elasticity of Demand

스터디 가이드 - 연습 문제

학습 가이드 - 플래시카드