Question 1

Suppose the price of a concert ticket increases from $$100 to 120$$, and as a result, the quantity demanded falls from 500 to 400 tickets. Using the midpoint (average) method, what is the price elasticity of demand?

Accepted Answer

$$\frac{(400-500)}{(400+500)/2} \div \frac{(120-100)}{(120+100)/2} = \frac{-100}{450} \div \frac{20}{110} = -0.222 \div 0.182 = -1.22 ($$elastic)

Question 2

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 3

If the price elasticity of demand for gasoline is 0.3, what will happen to total revenue if the price of gasoline increases?

Accepted Answer

Total revenue will increase because demand is inelastic ($$|0.3| \u003c 1)$$

Question 4

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

Accepted Answer

The good has many close substitutes

Question 5

A 10% increase in the price of laptops leads to a 15% decrease in the quantity demanded. What is the price elasticity of demand, and how would you classify the demand for laptops?

Accepted Answer

$$\frac{15\%}{10\%} = 1.5$$; demand is elastic

Question 6

If the cross elasticity of demand between tea and coffee is $$+0.8$$, what does this imply about the relationship between the two goods?

Accepted Answer

They are substitutes

Question 7

Suppose the income elasticity of demand for used clothing is $$-0.5. $$What does this indicate?

Accepted Answer

Used clothing is an inferior good

Question 8

Which of the following best describes the elasticity of supply for a good with many easily substitutable resources and a long time frame for production adjustment?

Accepted Answer

Supply is highly elastic

Question 9

A bakery finds that when the price of bread rises by 5%, the quantity supplied increases by 10%. What is the elasticity of supply, and how is it classified?

Accepted Answer

$$\frac{10\%}{5\%} = 2$$; supply is elastic

Question 10

Which scenario best illustrates a perfectly elastic supply curve?

Accepted Answer

A wheat farmer can sell any quantity at the world market price, but nothing at a lower price

Question 11

If the price of a good falls from $$15 to 10 $$and the quantity demanded increases from 20 to 30 units, what is the price elasticity of demand using the midpoint method?

Accepted Answer

$$\frac{(30-20)}{(30+20)/2} \div \frac{(10-15)}{(10+15)/2} = \frac{10}{25} \div \frac{-5}{12.5} = 0.4 \div -0.4 = -1$$

Question 12

Which of the following statements about the total revenue test is correct?

Accepted Answer

If a price cut increases total revenue, demand is elastic

Question 13

A 5% increase in income leads to a 10% increase in the quantity demanded of organic food. What is the income elasticity of demand, and how is organic food classified?

Accepted Answer

$$\frac{10\%}{5\%} = 2$$; organic food is a normal good and income elastic

Question 14

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

Accepted Answer

Consumers have more time to adjust their usage and find substitutes

Question 15

If the cross elasticity of demand between peanut butter and jelly is $$-0.6$$, what does this indicate?

Accepted Answer

They are complements

Question 16

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

Accepted Answer

The cost of production

Question 17

A supply curve is vertical. What does this imply about the elasticity of supply?

Accepted Answer

Supply is perfectly inelastic ($$E_s = 0)$$

Question 18

If a 10% increase in the price of a good leads to a 10% increase in the quantity supplied, what is the elasticity of supply?

Accepted Answer

$$\frac{10\%}{10\%} = 1$$; supply is unit elastic

Question 19

Which of the following best describes a good with a price elasticity of demand equal to zero?

Accepted Answer

Quantity demanded does not change as price changes

Elasticity in Microeconomics: Price, Income, and Supply Elasticities

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