Question 1

Suppose the price of a product increases from $$4.00 to 4.50$$, and as a result, the quantity demanded decreases from 1,000 units to 900 units. Using the midpoint formula, what is the price elasticity of demand?

Accepted Answer

$$\frac{(900-1000)}{(1000+900)/2} \div \frac{(4.50-4.00)}{(4.00+4.50)/2} = \frac{-100}{950} \div \frac{0.50}{4.25} = -0.105 \div 0.118 = -0.89$$

Question 2

Which of the following best describes a good with perfectly inelastic demand?

Accepted Answer

The demand curve is vertical, and the price elasticity of demand is $$0.$$

Question 3

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

Accepted Answer

They are substitutes.

Question 4

A 10% increase in the price of gasoline leads to a 2% decrease in quantity demanded. What is the price elasticity of demand, and is demand elastic or inelastic?

Accepted Answer

$$\frac{-2\%}{10\%} = -0.2$$, which is inelastic.

Question 5

Which of the following is most likely to have an elastic demand?

Accepted Answer

A specific brand of energy drink.

Question 6

If the income elasticity of demand for a good is negative, what type of good is it?

Accepted Answer

Inferior good.

Question 7

Suppose the price elasticity of supply for pizza is $$0.5 in $$the short run and $$2.0 in $$the long run. What does this indicate about the responsiveness of pizza supply to price changes over time?

Accepted Answer

Supply is more elastic in the long run than in the short run.

Question 8

If a firm wants to increase its total revenue and the demand for its product is elastic, what should it do?

Accepted Answer

Decrease the price.

Question 9

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

Accepted Answer

The product has many close substitutes.

Question 10

Given the following data: Price = $$4, Quantity Demanded = 8, Total Revenue = 32. If $$the price falls to $3 and quantity demanded rises to 10, what happens to total revenue and what does this indicate about the elasticity of demand in this range?

Accepted Answer

Total revenue decreases from $$32 to 30$$, indicating inelastic demand.

Question 11

If the cross-price elasticity of demand between beer and wine is $$0.31$$, what will happen to the quantity demanded of beer if the price of wine increases by 10%?

Accepted Answer

The quantity demanded of beer will increase by 3.1%.

Question 12

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

Accepted Answer

Elasticity is not the same as the slope because elasticity is unit-free and based on percentage changes.

Question 13

A product has a price elasticity of demand of $$-2.3. If $$the firm increases the price by 10%, what is the expected percentage change in quantity demanded?

Accepted Answer

Quantity demanded will decrease by 23%.

Question 14

Which of the following is a determinant of the price elasticity of supply?

Accepted Answer

The passage of time.

Question 15

If the income elasticity of demand for wine is $$5.03$$, what does this indicate about wine?

Accepted Answer

Wine is a luxury good.

Question 16

If a good takes up a large share of a consumer's budget, what can you say about the price elasticity of demand for that good?

Accepted Answer

The demand is likely to be more elastic.

Question 17

Suppose the price of a necessity increases. What is the most likely effect on quantity demanded and total revenue?

Accepted Answer

Quantity demanded decreases slightly, and total revenue increases.

Question 18

If the price elasticity of supply is $$0.2$$, what does this indicate about the supply curve?

Accepted Answer

Supply is inelastic.

Question 19

Which of the following scenarios best illustrates the effect of time on the elasticity of demand?

Accepted Answer

When gasoline prices rise, consumers initially buy the same amount, but over time they switch to public transportation or buy fuel-efficient cars.

chapter 6 microecon

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