Question 1

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 (average) method?

Accepted Answer

$$\frac{20\%}{5\%} = 4$$

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

Accepted Answer

Demand is inelastic; quantity demanded changes less than price

Question 4

A store reduces the price of its product by 10%. As a result, the quantity sold increases by 15%. What can be said about the price elasticity of demand and total revenue?

Accepted Answer

Demand is elastic and total revenue increases

Question 5

Which factor would make the demand for a good more elastic?

Accepted Answer

The good has many close substitutes

Question 6

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

Accepted Answer

The goods are complements

Question 7

A 5% increase in income leads to a 10% increase in the quantity demanded of a good. What is the income elasticity of demand, and what type of good is this?

Accepted Answer

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

Question 8

Which of the following scenarios best illustrates the total revenue test for elasticity?

Accepted Answer

A price cut increases total revenue, indicating elastic demand

Question 9

If the supply curve for a good is horizontal, what is the elasticity of supply?

Accepted Answer

Perfectly elastic; elasticity is infinite

Question 10

Which of the following would increase the elasticity of supply for a product?

Accepted Answer

Producers can easily substitute resources used in production

Question 11

A 10% increase in the price of burgers leads to a 5% increase in the quantity of pizza demanded. What is the cross elasticity of demand, and what does it indicate?

Accepted Answer

$$\frac{5\%}{10\%} = 0.5$$; the goods are substitutes

Question 12

If the price of a good increases and the quantity supplied increases by a greater percentage than the price, what is the elasticity of supply?

Accepted Answer

Elastic; elasticity is greater than one

Question 13

Which of the following statements about the slope and elasticity of a demand curve is correct?

Accepted Answer

Elasticity is independent of the units of measurement, while slope is not

Question 14

If a good has a price elasticity of demand equal to zero, what does its demand curve look like?

Accepted Answer

Vertical

Question 15

A 1% increase in price leads to a 1% decrease in quantity demanded. What is the price elasticity of demand and what does it mean for total revenue?

Accepted Answer

Elasticity is 1 (unit elastic); total revenue remains unchanged

Question 16

Which of the following is true about the elasticity of supply in the long run compared to the short run?

Accepted Answer

Elasticity of supply is greater in the long run

Question 17

If the price of a soft drink (a complement to pizza) rises, what happens to the quantity of pizza demanded and what is the sign of the cross elasticity?

Accepted Answer

Quantity demanded of pizza decreases; cross elasticity is negative

Question 18

Which of the following best describes a good with income elasticity less than zero?

Accepted Answer

Inferior good

Question 19

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

Accepted Answer

Unit elastic

Question 20

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

Accepted Answer

The cost of production

chapter 4

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