Q: Which of the following is the correct formula for calculating the price elasticity of demand using point elasticity?

$$\frac{\Delta Q}{\Delta P} \times \frac{P_1$}{Q_1$}$$

Question 1

Suppose the price of a product increases from $$2 to 3$$, and as a result, the quantity demanded decreases from 10 units to 5 units. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(10-5)}{(10+5)/2} \div \frac{(2-3)}{(2+3)/2} = \frac{5}{7.5} \div \frac{-1}{2.5} = 0.67 \div -0.4 = -1.67$$

Question 2

Which of the following best describes a perfectly inelastic demand curve?

Accepted Answer

A vertical line, indicating that quantity demanded does not change regardless of price.

Question 3

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

Accepted Answer

They are substitutes.

Question 4

A city imposes a $$1.00 per-unit tax on avocados, shifting the supply curve upward by 1.00. If $$the equilibrium quantity falls from 1,000 to 500 avocados per day, what is the most likely reason for the decrease in quantity sold?

Accepted Answer

The demand for avocados is elastic, so consumers reduce quantity demanded significantly when price rises.

Question 5

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

Accepted Answer

Insulin for diabetics

Question 6

If the price elasticity of demand for a product is $$-0.5$$, what will happen to total revenue if the price increases?

Accepted Answer

Total revenue will increase.

Question 7

Which of the following factors is most likely to make the demand for a good more elastic?

Accepted Answer

There are many close substitutes available.

Question 8

Suppose the income elasticity of demand for a good is $$1.2. $$What does this indicate about the good?

Accepted Answer

It is a normal good and a luxury.

Question 9

If the price of a good increases by 10% and the quantity demanded falls by 20%, what is the price elasticity of demand?

Accepted Answer

$$\frac{-20\%}{10\%} = -2$$

Question 10

Which of the following statements about the slope of a demand curve and elasticity is correct?

Accepted Answer

Changing the units of measurement changes the slope but not the elasticity.

Question 11

A sandwich shop finds that in the short run, the demand for its sandwiches is less elastic than in the long run. What is the most likely explanation for this?

Accepted Answer

Consumers have more time to find substitutes in the long run.

Question 12

If a 5% increase in the price of good X leads to a 10% decrease in the quantity of good Y demanded, what is the cross-price elasticity of demand?

Accepted Answer

$$\frac{-10\%}{5\%} = -2$$

Question 13

Which of the following best describes unitary elasticity?

Accepted Answer

The percentage change in quantity demanded is equal to the percentage change in price.

Question 14

If the price elasticity of supply for a product is $$0.8$$, what does this indicate about the supply curve?

Accepted Answer

Supply is inelastic.

Question 15

A government imposes a per-unit tax on a good with perfectly inelastic demand. Who bears the entire burden of the tax?

Accepted Answer

Consumers

Question 16

Which of the following is the correct formula for calculating the price elasticity of demand using point elasticity?

Accepted Answer

$$\frac{\Delta Q}{\Delta P} 	imes \frac{P_1$}{Q_1$}$$

Question 17

If a price cut increases total revenue, what can you conclude about the price elasticity of demand for the product?

Accepted Answer

Demand is elastic.

Question 18

Which of the following scenarios best illustrates the importance of the time dimension in elasticity?

Accepted Answer

A sudden increase in gasoline prices leads to a small decrease in quantity demanded in the first month, but a much larger decrease after a year.

Elasticity in Microeconomics: Concepts, Calculation, and Applications

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