Question 1

Suppose the price of a concert ticket increases by 20%, and as a result, the quantity demanded falls by 10%. What is the price elasticity of demand, and how would you classify the demand for concert tickets in this case?

Accepted Answer

$$E_D = \frac{-10\%}{20\%} = -0.5$$, which is inelastic demand.

Question 2

Which of the following goods is most likely to have a highly elastic demand?

Accepted Answer

A specific brand of breakfast cereal, because there are many close substitutes.

Question 3

If a 15% decrease in the price of a product leads to a 10% increase in quantity demanded, what is the price elasticity of demand, and what does this imply about total revenue if the price is decreased?

Accepted Answer

$$E_D = \frac{10\%}{-15\%} = -0.66. $$Demand is inelastic, so total revenue will decrease.

Question 4

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

Accepted Answer

Consumers have more time to adjust their behavior, such as buying fuel-efficient cars or moving closer to work.

Question 5

A vertical demand curve represents which of the following cases?

Accepted Answer

Perfectly inelastic demand, where $$E_D = 0.$$

Question 6

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

Accepted Answer

They are complements.

Question 7

Suppose the price of Good A rises by 18% and the quantity demanded of Good B falls by 12%. What is the cross-price elasticity of demand, and what does this imply?

Accepted Answer

$$E_{AB} = \frac{-12\%}{18\%} = -0.66$$, so the goods are complements.

Question 8

If the income elasticity of demand for a good is positive but less than 1, what type of good is it?

Accepted Answer

A normal good and a necessity.

Question 9

A city government is considering a tax on soda to reduce consumption and raise revenue. If the demand for soda is highly elastic, what is the most likely outcome?

Accepted Answer

Soda consumption will decrease significantly, but tax revenue will be lower than expected.

Question 10

Which of the following is NOT a determinant of the price elasticity of demand?

Accepted Answer

The cost of production for the good.

Question 11

If a 25% decrease in price leads to a 5% decrease in quantity supplied, what is the price elasticity of supply, and how would you classify it?

Accepted Answer

$$E_S = \frac{-5\%}{-25\%} = 0.2$$, which is inelastic supply.

Question 12

Which scenario best illustrates perfectly elastic supply?

Accepted Answer

Farmers can supply any quantity of wheat at the market price, but none at a lower price.

Question 13

If the price elasticity of demand for a product is exactly $$-1$$, what happens to total revenue when the price changes?

Accepted Answer

Total revenue remains unchanged.

Question 14

Tesla cuts the price of its Model 3 by 14% in response to increased competition. If demand for electric vehicles has become more elastic, what is the likely effect on Tesla's total revenue?

Accepted Answer

Total revenue will increase because the percentage increase in quantity demanded will be greater than the percentage decrease in price.

Question 15

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

Accepted Answer

It measures the responsiveness of quantity supplied to a change in price.

Question 16

If the price of oil doubles overnight, why is the short-run price elasticity of supply for oil close to zero?

Accepted Answer

Producers cannot quickly increase output due to production constraints.

Question 17

Which of the following best describes the relationship between price elasticity of demand and total revenue?

Accepted Answer

When demand is elastic, a price decrease increases total revenue.

Question 18

A 10% increase in income leads to a 15% increase in the quantity demanded of a good. What is the income elasticity of demand, and what type of good is this?

Accepted Answer

$$E_I = \frac{15\%}{10\%} = 1.5$$, which is a normal good and a luxury.

Question 19

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

Accepted Answer

The product has many close substitutes.

Elasticity: The Responsiveness of Demand and Supply (Microeconomics CH6 Study Notes)

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