Question 1

Why do economists prefer to use percentage change rather than slope when calculating elasticity?

Accepted Answer

Because percentage change eliminates the effect of units of measurement, ensuring consistency across different data sets.

Question 2

Given the following data: $$P_1 = 100$, P_2$ = 120$$, $$Q_1 = 250$, Q_2$ = 500. $$Calculate the price elasticity of demand (PED) using the midpoint formula.

Accepted Answer

$$PED = \frac{(500-250)/((500+250)/2)}{(120-100)/((120+100)/2)} = \frac{250/375}{20/110} = \frac{0.6667}{0.1818} = 3.67$$

Question 3

If the price elasticity of demand (PED) for a product is $$-1.97$$, what does this imply about the relationship between price and total revenue?

Accepted Answer

Price and total revenue have a negative relationship; increasing price decreases total revenue.

Question 4

Which formula ensures that the calculated elasticity is the same regardless of the direction of movement between two points on a demand curve?

Accepted Answer

Midpoint formula

Question 5

Suppose the cross-price elasticity of demand (CPED) between goods A and B is $$-1.41. $$What does this indicate?

Accepted Answer

A and B are complementary goods.

Question 6

If the income elasticity of demand (IED) for a good is $$+0.89$$, how is this good classified?

Accepted Answer

Necessity

Question 7

A 5% increase in the price of a good with a price elasticity of supply (PES) of $$0.69$$ will result in what percentage change in quantity supplied?

Accepted Answer

A 3.45% increase in quantity supplied

Question 8

If the price of a product increases and demand is price inelastic, what happens to total revenue?

Accepted Answer

Total revenue increases.

Question 9

Which of the following statements about the price elasticity of supply (PES) is correct?

Accepted Answer

PES increases as time increases.

Question 10

If the income elasticity of demand (IED) for a good is $$-0.77$$, what does this mean for the good?

Accepted Answer

It is an inferior good.

Question 11

A firm observes that when it raises the price of its product, total revenue falls. What can be inferred about the price elasticity of demand for this product?

Accepted Answer

Demand is price elastic.

Question 12

If the cross-price elasticity of demand (CPED) between goods X and Y is $$0$$, what does this imply?

Accepted Answer

X and Y are unrelated goods.

Question 13

Given the following scenario: The price of good B increases by 7%, and the CPED between goods A and B is $$+3.31. $$What is the expected percentage change in the quantity demanded of good A?

Accepted Answer

23.17% increase

Question 14

Which of the following best describes the relationship between the slope of a demand curve and its elasticity?

Accepted Answer

A flatter slope means the good is more price elastic.

Question 15

If the midpoint price elasticity of demand (PED) between two points is $$-2.67$$, how would you classify the demand?

Accepted Answer

Price elastic

Question 16

A 9% increase in income leads to a 65.97% increase in quantity demanded for a good. What is the income elasticity of demand (IED) for this good?

Accepted Answer

$$IED = \frac{65.97}{9} = 7.33$$

Question 17

Which of the following is true about the sign of the cross-price elasticity of demand (CPED)?

Accepted Answer

It can be positive, negative, or zero depending on the relationship between goods.

Question 18

If the price elasticity of supply (PES) is less than one, what does this indicate about the responsiveness of quantity supplied to price changes?

Accepted Answer

Quantity supplied is not very responsive to price changes.

Question 19

If the price of a good decreases and demand is price elastic, what happens to total revenue?

Accepted Answer

Total revenue increases.

Question 20

Which of the following is the correct formula for the midpoint price elasticity of demand (PED) between two points?

Accepted Answer

$$PED = \frac{(Q_2$ - Q_1$)/((Q_1$ + Q_2$)/2)}{(P_2$ - P_1$)/((P_1$ + P_2$)/2)}$$

Elasticity in Microeconomics: Calculation, Interpretation, and Applications

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