Question 1

Suppose the price of a pizza falls from $$20.50 to 19.50 $$and the quantity demanded increases from 9 to 11 pizzas per hour. What is the price elasticity of demand for pizza over this range?

Accepted Answer

$$\frac{20\%}{5\%} = 4$$

Question 2

Which of the following best describes a good with perfectly inelastic demand?

Accepted Answer

The demand curve is vertical and the price elasticity of demand is $$0$$

Question 3

If the price elasticity of demand for a product is less than 1 but greater than 0, which of the following is true?

Accepted Answer

Demand is inelastic and total revenue increases when price increases

Question 4

Which factor does NOT increase the price elasticity of demand for a good?

Accepted Answer

The good is a necessity with few substitutes

Question 5

A 10% increase in the price of gasoline leads to a 2% decrease in quantity demanded. What is the price elasticity of demand, and how would you categorize it?

Accepted Answer

$$\frac{2\%}{10\%} = 0.2$$, inelastic

Question 6

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

Accepted Answer

They are complements

Question 7

A good has an income elasticity of demand of $$-0.5. $$What type of good is it?

Accepted Answer

Inferior good

Question 8

If a 5% increase in income leads to a 10% increase in the quantity demanded of a good, what is the income elasticity of demand and how is the good classified?

Accepted Answer

$$\frac{10\%}{5\%} = 2$$, income elastic (normal good)

Question 9

Which of the following statements about total revenue and elasticity is correct?

Accepted Answer

If demand is elastic, a price decrease increases total revenue

Question 10

A linear demand curve has which of the following properties?

Accepted Answer

Elasticity varies along the curve, being elastic at high prices and inelastic at low prices

Question 11

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

Accepted Answer

The goods are unrelated

Question 12

Which of the following best describes a perfectly elastic supply curve?

Accepted Answer

A horizontal line with elasticity equal to infinity

Question 13

Suppose the price of a good increases by 8% and the quantity supplied increases by 16%. What is the price elasticity of supply?

Accepted Answer

$$\frac{16\%}{8\%} = 2$$

Question 14

Which of the following is most likely to have a perfectly inelastic supply in the short run?

Accepted Answer

A fixed number of seats in a stadium for a concert

Question 15

If a 10% increase in the price of tea leads to a 5% increase in the quantity demanded of coffee, what is the cross elasticity of demand and what does it indicate?

Accepted Answer

$$\frac{5\%}{10\%} = 0.5$$, the goods are substitutes

Question 16

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

Accepted Answer

The good has many close substitutes

Question 17

If the price elasticity of supply is less than 1 but greater than 0, how is supply categorized?

Accepted Answer

Inelastic

Question 18

A pharmaceutical company produces a life-saving drug with no close substitutes. What is the likely price elasticity of demand for this drug?

Accepted Answer

Perfectly inelastic

Question 19

If a 15% increase in income leads to a 10% increase in the quantity demanded of a good, what is the income elasticity of demand and what type of good is it?

Accepted Answer

$$\frac{10\%}{15\%} = 0.67$$, income inelastic (normal good)

Elasticity in Microeconomics: Price, Income, Cross, and Supply Elasticities

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