Question 1

Suppose the price of PURELL Advanced Hand Sanitizer increased dramatically during the pandemic. If the price elasticity of demand for hand sanitizer is 1.5, what does this imply about consumer response to price changes?

Accepted Answer

Demand is elastic; quantity demanded will decrease by a greater percentage than the price increase.

Question 2

Which of the following formulas correctly represents the midpoint (arc) formula for price elasticity of demand?

Accepted Answer

$$E_d = \frac{(Q_2$ - Q_1$)}{(Q_2$ + Q_1$)/2} \div \frac{(P_2$ - P_1$)}{(P_2$ + P_1$)/2}$$

Question 3

If a band wants to increase its total revenue from a gig and the demand for tickets is price-elastic, what should they do with the cover charge?

Accepted Answer

Decrease the cover charge.

Question 4

Which determinant is most likely to make the demand for a good more elastic?

Accepted Answer

There are many close substitutes available.

Question 5

If the price elasticity of demand for cigarettes is 0.40, what does this indicate?

Accepted Answer

Demand is inelastic; consumers are not very responsive to price changes.

Question 6

Which of the following best describes the relationship between price and total revenue when demand is price-inelastic?

Accepted Answer

Price and total revenue move together.

Question 7

A cross-price elasticity of demand between two goods is negative. What does this imply about the relationship between the goods?

Accepted Answer

They are complements.

Question 8

If the income elasticity of demand for public transit is $$-0.75$$, what type of good is public transit?

Accepted Answer

An inferior good.

Question 9

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

Accepted Answer

A life-saving medication with no substitutes.

Question 10

If the price of gasoline increases by 10% and the quantity demanded decreases by 5%, what is the price elasticity of demand for gasoline?

Accepted Answer

$$E_d = \frac{-5\%}{10\%} = -0.5$$

Question 11

Which of the following scenarios would likely result in a more elastic supply curve for a product?

Accepted Answer

The firm has a large inventory and can easily hire more workers.

Question 12

If the cross-price elasticity of demand between tablet computers and applications downloaded from online stores is negative, what happens to the demand for applications when the price of tablets falls?

Accepted Answer

Demand for applications increases.

Question 13

Which of the following is true about the price elasticity of demand for a narrowly defined market, such as Post Raisin Bran cereal?

Accepted Answer

It is more elastic because there are more close substitutes.

Question 14

If a good takes only a small fraction of a consumer’s budget, then this good tends to have:

Accepted Answer

Less elastic demand.

Question 15

A firm observes that when it increases the price of its product, total revenue decreases. What does this indicate about the price elasticity of demand for its product?

Accepted Answer

Demand is elastic.

Question 16

Which of the following goods is most likely to have a high income elasticity of demand?

Accepted Answer

Foreign vacations.

Question 17

If the price elasticity of supply is greater in the long run than in the short run, what does this suggest about producers?

Accepted Answer

Producers can adjust their production more easily over time.

Question 18

If the cross-price elasticity of demand between two brands of tablet computers is positive, what does this mean?

Accepted Answer

The goods are substitutes.

Question 19

Which of the following is the correct formula for total revenue?

Accepted Answer

$$TR = P 	imes Q$$

Question 20

If demand for a product is perfectly elastic, what happens to quantity demanded when the price increases even slightly?

Accepted Answer

Quantity demanded falls to zero.

Elasticity in Microeconomics: Concepts, Measurement, and Applications

Study Guide - Practice Questions

Study Guide - Flashcards