Question 1

Suppose the price-demand equation for a product is $$p = 100 - 2x. $$What is the elasticity of demand $$E(p) at$$ $$p = 60$$?

Accepted Answer

$$E(60) = 0.5$$

Question 2

If the elasticity of demand for a product at a certain price is $$E(p) = 0.7$$, which of the following statements is true?

Accepted Answer

Demand is inelastic and a price increase will increase revenue.

Question 3

Given the demand function $$x = 500 - 5p$$, find the price $$p at $$which the demand is unit elastic.

Accepted Answer

$$p = 40$$

Question 4

A company sells a product with the price-demand equation $$p = 80 - 0.5x. If $$the current price is $$p = 60$$, what is the relative rate of change of demand with respect to price?

Accepted Answer

$$-\frac{1}{40}$$

Question 5

If the percentage rate of change of GDP is decreasing over time, but GDP itself is increasing, which of the following is true?

Accepted Answer

GDP is increasing at a decreasing rate.

Question 6

Suppose the demand for a necessity like milk is found to be inelastic. What is the most likely effect on revenue if the price increases?

Accepted Answer

Revenue will increase.

Question 7

Which of the following best describes unit elasticity?

Accepted Answer

A percentage change in price produces the same percentage change in demand.

Question 8

If the price-demand equation is $$p = 60 - x$$, for which price is the demand elastic?

Accepted Answer

$$p = 30$$

Question 9

A luxury item such as jewelry is found to have an elasticity of demand $$E(p) = 2.5. $$What does this imply about consumer behavior?

Accepted Answer

A price increase will decrease revenue.

Question 10

Given the demand function $$x = 1000 - 10p$$, what is the elasticity of demand at $$p = 50$$?

Accepted Answer

$$E(50) = 1$$

Question 11

If the elasticity of demand for eggs is $$E(p) = 0.3$$, what does this suggest about the product?

Accepted Answer

Eggs are a necessity with inelastic demand.

Question 12

A company wants to maximize revenue. If the current elasticity of demand is $$E(p) \u003e 1$$, what should the company do?

Accepted Answer

Decrease the price.

Question 13

Which of the following is the correct formula for the elasticity of demand $$E(p)$$ given a price-demand equation $$p = f(x)$$?

Accepted Answer

$$E(p) = -\frac{p}{x} \frac{dx}{dp}$$

Question 14

If the relative rate of change of a function $$f(x) is$$ $$\frac{f'(x)}{f(x)}$$, what is the percentage rate of change?

Accepted Answer

$$100 \cdot \frac{f'(x)}{f(x)}$$

Question 15

A company observes that when the price of their product increases by 10%, the demand decreases by 20%. What is the elasticity of demand?

Accepted Answer

$$E(p) = 2$$

Question 16

If the price-demand equation is $$p = 120 - 3x$$, what is the demand $$x$$ when the price is $$p = 60$$?

Accepted Answer

$$x = 30$$

Question 17

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

Accepted Answer

Milk

Question 18

If the elasticity of demand at a certain price is exactly 1, what happens to revenue if the price increases?

Accepted Answer

Revenue remains unchanged.

Question 19

Suppose the price-demand equation is $$p = 200 - 4x. At $$what value of $$x is $$the demand unit elastic?

Accepted Answer

$$x = 50$$

Elasticity of Demand- Chapter 3

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