Q: Which of the following is the correct formula for calculating the percentage change in quantity demanded using the initial value formula?

$$\frac{\text{new quantity} - \text{old quantity}}{\text{old quantity}}$$

Question 1

Suppose the price of a concert ticket increases from $$50 to 60$$, and as a result, the quantity demanded falls from 200 to 180 tickets. Using the initial value formula, what is the price elasticity coefficient of demand (rounded to two decimal places)?

Accepted Answer

$$\frac{(180-200)}{200} = -0.10$$ for quantity; $$\frac{(60-50)}{50} = 0.20$$ for price; Elasticity $$= \frac{0.10}{0.20} = 0.50$$

Question 2

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

Accepted Answer

Insulin for diabetics

Question 3

If the price elasticity coefficient of demand for a product is $$0.8$$, how would you classify the demand for this product?

Accepted Answer

Inelastic

Question 4

A 10% increase in the price of pencils leads to a 2% decrease in quantity demanded. What is the price elasticity of demand, and what does this imply about consumer responsiveness?

Accepted Answer

$$\frac{2}{10} = 0.2$$; demand is inelastic, consumers are not very responsive

Question 5

Which of the following is the correct formula for calculating the percentage change in quantity demanded using the initial value formula?

Accepted Answer

$$\frac{	ext{new quantity} - 	ext{old quantity}}{	ext{old quantity}}$$

Question 6

Which determinant is generally considered the MOST important in determining the price elasticity of demand for a good?

Accepted Answer

Availability of substitutes

Question 7

A company increases the price of its product by 15%, and as a result, the quantity demanded falls by 30%. What is the price elasticity of demand, and how should the company interpret this result?

Accepted Answer

$$\frac{30}{15} = 2$$; demand is elastic, consumers are highly responsive

Question 8

Which of the following scenarios is most likely to result in a more elastic demand for a product?

Accepted Answer

A long time period after a price change, allowing consumers to find alternatives

Question 9

If a 20% increase in the price of a luxury vacation package leads to a 25% decrease in quantity demanded, what is the price elasticity of demand, and what does this indicate?

Accepted Answer

$$\frac{25}{20} = 1.25$$; demand is elastic

Question 10

Which of the following best explains why the demand for gasoline is more inelastic in the short run than in the long run?

Accepted Answer

Consumers need time to adjust their behavior and find alternatives, making demand more elastic over time

Question 11

A store increases the price of a $$0.50 candy bar to 1.00$$, but sales only drop slightly. What does this suggest about the price elasticity of demand for the candy bar?

Accepted Answer

Demand is inelastic because the candy bar is a small part of the consumer's budget

Question 12

Which of the following statements is TRUE regarding the calculation of the price elasticity coefficient of demand?

Accepted Answer

The absolute value is used because the law of demand ensures one percentage change is negative

Question 13

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

Accepted Answer

A specific brand of breakfast cereal

Question 14

If the price of a necessity such as bread increases by 5% and the quantity demanded decreases by 1%, what is the price elasticity of demand and what does this imply?

Accepted Answer

$$\frac{1}{5} = 0.2$$; demand is inelastic

Question 15

A 15% increase in the price of a good leads to a 15% decrease in quantity demanded. What is the price elasticity of demand, and how is this demand classified?

Accepted Answer

$$\frac{15}{15} = 1$$; demand is unit elastic

Question 16

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of production for the good

Question 17

Why might the demand for a new smartphone model be more elastic for college students than for wealthy professionals?

Accepted Answer

College students have smaller budgets, so price changes affect them more

Question 18

If a product is considered a luxury and has many close substitutes, what can you infer about its price elasticity of demand?

Accepted Answer

It is likely to be elastic

Question 19

A city raises the price of public bus fares by 25%. In the short run, ridership falls by only 5%. What does this suggest about the price elasticity of demand for bus rides in the short run?

Accepted Answer

Demand is inelastic because consumers have few immediate alternatives

Question 20

Which of the following best describes the relationship between the size of a good's share in a consumer's budget and its price elasticity of demand?

Accepted Answer

Goods that take up a large share of the budget tend to have more elastic demand

Microeconomics Study Guide: Chapter 5 – Elasticity

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