Question 1

Suppose the price of a product increases by 10%, and as a result, the quantity demanded decreases by 5%. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$\frac{-5\%}{10\%} = -0.5$

Question 2

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

Accepted Answer

Insulin for diabetics

Question 3

If a 20% increase in the price of beef leads to a 20% decrease in quantity demanded, what is the price elasticity of demand for beef?

Accepted Answer

$\frac{-20\%}{20\%} = -1$

Question 4

Which determinant of price elasticity of demand explains why the demand for gasoline is relatively inelastic in the short run?

Accepted Answer

Time dimension

Question 5

A company increases the price of its product, and total revenue decreases. What does this indicate about the price elasticity of demand for the product?

Accepted Answer

Demand is elastic

Question 6

Which of the following statements is true regarding the price elasticity of demand for a narrowly defined market?

Accepted Answer

It is more elastic because there are more substitutes available.

Question 7

If the price elasticity of demand for cigarettes is -0.5, what will happen to total revenue if the government imposes a tax that increases the price?

Accepted Answer

Total revenue will increase

Question 8

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

Accepted Answer

Production technology

Question 9

A 15% increase in the price of Raisin Bran leads to a 25% decrease in sales. What is the price elasticity of demand for Raisin Bran?

Accepted Answer

$\frac{-25\%}{15\%} = -1.67$

Question 10

Which type of good is most likely to have an income elasticity of demand greater than 1?

Accepted Answer

Luxury goods

Question 11

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

Accepted Answer

The goods are substitutes

Question 12

Which of the following demand curves is more inelastic?

Accepted Answer

A steeper demand curve

Question 13

A 40% increase in the price of gum leads to a 16% decrease in quantity demanded. What does this suggest about the price elasticity of demand for gum?

Accepted Answer

Demand is inelastic

Question 14

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

Accepted Answer

The product has many close substitutes

Question 15

If the price elasticity of demand for a product is -2.33, what happens to total revenue if the price increases?

Accepted Answer

Total revenue decreases

Question 16

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

Accepted Answer

A commodity in a perfectly competitive market

Question 17

If the cross-price elasticity of demand between peanut butter and jelly is negative, what does this mean?

Accepted Answer

They are complements

Question 18

Which of the following statements best describes the relationship between the share of an item in a consumer's budget and its price elasticity of demand?

Accepted Answer

The larger the share, the more elastic the demand

Question 19

If the price of cell phone service increases and consumers do not immediately reduce their usage, but over time they switch to alternatives, what concept does this illustrate?

Accepted Answer

Elasticity increases over time

Question 20

A government wants to discourage teen smoking by imposing a tax on cigarettes. If the price elasticity of demand for cigarettes among teens is -0.5, what is the expected effect on quantity demanded?

Accepted Answer

Quantity demanded will decrease, but by less than the percentage increase in price

Chapter 6: Elasticity – Microeconomics Study Notes

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