Question 1

Suppose the price of a 6-pack of Corona Beer decreases from $$9.00 to 8.00$$, and the quantity demanded increases from 2000 to 3000 units. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\eta = \frac{(1000) / 2500}{(-1) / 8.5} = -3.40$$

Question 2

If a 10% increase in the price of ski lift tickets causes a 5% decrease in total expenditure on lift tickets, what does this indicate about the price elasticity of demand for lift tickets?

Accepted Answer

Demand is elastic.

Question 3

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

Accepted Answer

Leafy vegetables sold at your local supermarket on Wednesdays

Question 4

If the price elasticity of demand for a product is $$\eta = 0$$, what does this imply about the demand curve?

Accepted Answer

The demand curve is perfectly inelastic.

Question 5

When the price elasticity of demand is greater than 1, what happens to total expenditure when price falls?

Accepted Answer

Total expenditure increases.

Question 6

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

Accepted Answer

The cost of production

Question 7

If the price elasticity of supply for a product is $$\eta_s = 1.42$$, what does this indicate about the responsiveness of quantity supplied to price changes?

Accepted Answer

Supply is elastic.

Question 8

A government imposes an excise tax on cigarettes. If the demand for cigarettes is more inelastic than the supply, who bears the greater burden of the tax?

Accepted Answer

Consumers

Question 9

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

Accepted Answer

Inferior good

Question 10

Suppose the cross elasticity of demand between tea and coffee is positive. What does this imply?

Accepted Answer

Tea and coffee are substitutes.

Question 11

If the price elasticity of demand for a product is exactly 1, what happens to total expenditure when price changes?

Accepted Answer

Total expenditure remains unchanged.

Question 12

Which of the following scenarios best illustrates a perfectly elastic demand curve?

Accepted Answer

Any increase in price causes quantity demanded to fall to zero.

Question 13

A company finds that the price elasticity of demand for its product is $$\eta = 0.2. $$What pricing strategy should it consider to increase total revenue?

Accepted Answer

Increase the price.

Question 14

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

Accepted Answer

Resource inputs are readily available.

Question 15

If the price of a drug increases overnight from $$13.50 to 750 $$per tablet and the quantity demanded falls only slightly, what does this suggest about the price elasticity of demand for the drug?

Accepted Answer

Demand is inelastic.

Question 16

Which formula correctly represents the price elasticity of supply using average price and average quantity?

Accepted Answer

$$\eta_s = \frac{\Delta Q_s / \overline{Q}}{\Delta p / \overline{p}}$$

Question 17

If a good is a necessity, what can you say about its income elasticity of demand?

Accepted Answer

It is less than 1.

Question 18

Which of the following statements about tax incidence is correct?

Accepted Answer

The burden of an excise tax depends only on the relative elasticities of supply and demand.

Question 19

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

Accepted Answer

The goods are complements.

Question 20

A payroll tax is imposed on labour. If the supply of labour is more inelastic than the demand for labour, who bears most of the tax burden?

Accepted Answer

Workers

Chapter 4: Elasticity – Microeconomics Study Notes

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