Q: Which formula is used to calculate the price elasticity of demand?

$$\frac{\text{Percentage change in quantity demanded}}{\text{Percentage change in price}}$$

Q: Which formula is used to calculate the elasticity of supply?

$$\frac{\text{Percentage change in quantity supplied}}{\text{Percentage change in price}}$$

Question 1

Which of the following best describes the price elasticity of demand?

Accepted Answer

It measures the responsiveness of the quantity demanded of a good to a change in its price, holding all other influences constant.

Question 2

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 using the midpoint formula?

Accepted Answer

4

Question 3

Which formula is used to calculate the price elasticity of demand?

Accepted Answer

$$\frac{	ext{Percentage change in quantity demanded}}{	ext{Percentage change in price}}$$

Question 4

If the price elasticity of demand for a good is less than 1, what does this imply about the demand for the good?

Accepted Answer

Demand is inelastic.

Question 5

Which of the following factors does NOT increase the elasticity of demand for a good?

Accepted Answer

The good is a necessity with few substitutes.

Question 6

A 1 percent price cut increases the quantity sold by more than 1 percent. What can be said about the demand and total revenue?

Accepted Answer

Demand is elastic and total revenue increases.

Question 7

If a price cut leaves total revenue unchanged, what is the price elasticity of demand?

Accepted Answer

Unit elastic

Question 8

Which of the following is true about the sign of the price elasticity of demand?

Accepted Answer

It is always negative, but the magnitude (absolute value) is used to describe elasticity.

Question 9

If the demand curve is vertical, what is the price elasticity of demand?

Accepted Answer

Perfectly inelastic

Question 10

Which of the following statements about the elasticity of supply is correct?

Accepted Answer

Elasticity of supply measures the responsiveness of quantity supplied to a change in the price of a good.

Question 11

Which formula is used to calculate the elasticity of supply?

Accepted Answer

$$\frac{	ext{Percentage change in quantity supplied}}{	ext{Percentage change in price}}$$

Question 12

Which of the following is most likely to have a perfectly inelastic supply in the momentary time frame?

Accepted Answer

Fresh strawberries immediately after harvest

Question 13

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

Accepted Answer

The goods are substitutes.

Question 14

Suppose the income elasticity of demand for a good is -0.5. What type of good is this?

Accepted Answer

Inferior good

Question 15

A company finds that the price elasticity of demand for its product is 0.8. If it increases the price by 10%, what will happen to its total revenue?

Accepted Answer

Total revenue will increase.

Question 16

Which of the following is NOT a factor that influences the elasticity of supply?

Accepted Answer

Closeness of substitutes for the good

Question 17

If the supply curve is horizontal, what is the elasticity of supply?

Accepted Answer

Infinite

Question 18

A decrease in the price of burgers (a substitute for pizza) leads to a decrease in the quantity of pizza demanded. What does this imply about the cross elasticity of demand between burgers and pizza?

Accepted Answer

It is positive, indicating they are substitutes.

Question 19

Which of the following best describes a good with unit elastic demand?

Accepted Answer

A 1 percent change in price leads to a 1 percent change in quantity demanded.

Elasticity in Microeconomics: Price, Income, and Cross Elasticities

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