Question 1

Suppose the price of a product increases by 20%, and the quantity demanded decreases by 10%. Using the formula for price elasticity of demand, what is the price elasticity of demand for this product?

Accepted Answer

$$\frac{10\%}{20\%} = 0.5$$

Question 2

A local business increases the price of its service from $$2,000 to 2$$,500, and the number of clients drops from 12 to 8. Using the midpoint method, what is the price elasticity of demand?

Accepted Answer

$$\frac{40\%}{22.2\%} = 1.8$$

Question 3

Which of the following goods is likely to have the highest price elasticity of demand?

Accepted Answer

Mountain Dew

Question 4

If the demand for a good is perfectly inelastic, what does the demand curve look like and what is the price elasticity of demand?

Accepted Answer

Vertical curve; price elasticity of demand = 0

Question 5

A 10% increase in the price of insulin leads to a 2% decrease in quantity demanded. What can you conclude about the demand for insulin?

Accepted Answer

Demand is inelastic

Question 6

If the price elasticity of demand for a product is greater than 1, what happens to total revenue when the price increases?

Accepted Answer

Total revenue decreases

Question 7

Which determinant is most likely to make the demand for a good more elastic?

Accepted Answer

Availability of close substitutes

Question 8

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

Accepted Answer

The goods are complements

Question 9

Suppose a new hybrid wheat increases production per acre by 20%, but demand for wheat is inelastic. What is the likely effect on farmers' total revenue?

Accepted Answer

Total revenue falls

Question 10

If the price of pizza increases from $$12 to 14 $$and the quantity supplied increases from 150 to 170 pies per day, what is the price elasticity of supply using the midpoint method?

Accepted Answer

$$\frac{125\%}{15.4\%} = 8.12$$

Question 11

Which of the following statements about supply elasticity is correct?

Accepted Answer

Supply is more elastic in the long run than in the short run

Question 12

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

Accepted Answer

Inferior good

Question 13

A government places a $2 per pack tax on cigarettes, and after one month, the quantity demanded falls only slightly. What does this suggest about the short-run demand for cigarettes?

Accepted Answer

Short-run demand is inelastic

Question 14

If the supply of parking spots is inelastic and the supply of wheat is elastic, and population growth doubles demand for both, which product will experience the greatest change in price?

Accepted Answer

Parking spots

Question 15

Which formula correctly represents the midpoint method for calculating price elasticity of demand?

Accepted Answer

$$\frac{(Q_2$ - Q_1$) / [(Q_2$ + Q_1$)/2]}{(P_2$ - P_1$) / [(P_2$ + P_1$)/2]}$$

Question 16

If a fare war causes the price of luxury cruises to fall by 20% and demand is elastic, what happens to total revenue?

Accepted Answer

Total revenue rises

Question 17

Which of the following is true about the slope and elasticity of a linear demand curve?

Accepted Answer

Slope is constant, but elasticity varies along the curve

Question 18

If the price elasticity of supply is less than 1, how is supply classified?

Accepted Answer

Inelastic

Question 19

If drug interdiction reduces the supply of illegal drugs and demand is inelastic, what is the likely effect on drug-related crime?

Accepted Answer

Drug-related crime increases

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