Question 1

Suppose the price of a concert ticket increases from $$50 to 70$$, and as a result, the quantity demanded falls from 200 to 150 tickets. Using the midpoint formula, what is the price elasticity of demand (in absolute value)?

$$	ext{Price Elasticity of Demand} = \frac{(Q_2$ - Q_1$)}{\left(\frac{Q_2$ + Q_1$}{2}ight)} \div \frac{(P_2$ - P_1$)}{\left(\frac{P_2$ + P_1$}{2}ight)}$$

Accepted Answer

1.25

Question 2

Which of the following best describes the difference between the slope of a demand curve and the price elasticity of demand?

Accepted Answer

The slope measures the absolute change in price and quantity, while elasticity measures the percentage change in price and quantity.

Question 3

Refer to the first image. Why is $$D_1$$ considered elastic between point A and point B?

Accepted Answer

Because the percentage change in quantity demanded is greater than the percentage change in price.

Question 4

Refer to the second image. What does it mean for $$D_2 to be $$inelastic between point A and point C?

Accepted Answer

The percentage change in quantity demanded is less than the percentage change in price.

Question 5

If the price of gasoline increases by 10% and the quantity demanded decreases by 0.6%, what is the price elasticity of demand for gasoline?

$$	ext{Price Elasticity of Demand} = \frac{\%\,	ext{Change in Quantity Demanded}}{\%\,	ext{Change in Price}}$$

Accepted Answer

0.06

Question 6

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

Accepted Answer

Insulin for diabetics

Question 7

If a 20% increase in the price of a luxury car leads to a 30% decrease in quantity demanded, what is the price elasticity of demand, and how would you classify the demand?

$$	ext{Price Elasticity of Demand} = \frac{30\%}{20\%}$$

Accepted Answer

1.5, elastic

Question 8

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

Accepted Answer

The product has many close substitutes.

Question 9

If the market for a product is narrowly defined, what can you infer about the price elasticity of demand?

Accepted Answer

It is likely to be more elastic due to the availability of more substitutes.

Question 10

A 10% increase in the price of bread leads to a 4% decrease in quantity demanded. What is the price elasticity of demand for bread, and how would you classify it?

$$	ext{Price Elasticity of Demand} = \frac{4\%}{10\%}$$

Accepted Answer

0.4, inelastic

Question 11

Which of the following statements is true regarding the passage of time and price elasticity of demand?

Accepted Answer

Demand is more elastic in the long run because consumers have more time to adjust their habits.

Question 12

If the price elasticity of demand for a product is $$-0.04$$, what does this imply about consumer responsiveness to price changes?

Accepted Answer

Consumers are not responsive to price changes; demand is highly inelastic.

Question 13

Which of the following real-world goods is likely to have the most elastic demand based on the provided elasticities?

Accepted Answer

Books (Barnes & Noble, $$-4.00)$$

Question 14

A city government is considering raising water prices to reduce consumption. If the price elasticity of demand for residential water is $$-0.38$$, what is the likely effect of a 10% price increase on quantity demanded?

Accepted Answer

Quantity demanded will decrease by 3.8%.

Question 15

If a product has a price elasticity of demand equal to infinity, what does this imply about the demand curve?

Accepted Answer

The demand curve is perfectly elastic (horizontal).

Question 16

Which of the following scenarios best illustrates unit elastic demand?

Accepted Answer

A 10% increase in price leads to a 10% decrease in quantity demanded.

Question 17

Why might the demand for health insurance among low-income households be relatively inelastic?

Accepted Answer

Because health insurance is a necessity and a small share of their budget.

Question 18

If the price of a sushi roll drops from $$8 to 4 $$and sales rise from 20 to 40 units, what is the (absolute value) of the price elasticity of demand using the midpoint formula?

$$	ext{Price Elasticity of Demand} = \frac{(Q_2$ - Q_1$)}{\left(\frac{Q_2$ + Q_1$}{2}ight)} \div \frac{(P_2$ - P_1$)}{\left(\frac{P_2$ + P_1$}{2}ight)}$$

Accepted Answer

1

Elasticity: The Responsiveness of Demand and Supply

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