Q: Which of the following equations correctly represents the price elasticity of demand?

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

Question 1

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

Accepted Answer

A units-free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same.

Question 2

Suppose the supply of pizza increases in a local market. If the demand for pizza is highly elastic, what is most likely to happen to the equilibrium price and quantity?

Accepted Answer

The equilibrium price will barely fall, and the equilibrium quantity will increase substantially.

Question 3

Why can't the slope of the demand curve always be used to compare the responsiveness of quantity demanded to price changes across different goods?

Accepted Answer

Because the slope depends on the units in which price and quantity are measured, making comparisons across unrelated goods meaningless.

Question 4

In Figure 4.1(a), after an increase in supply, the price of pizza falls from $$20 to 5 $$and the quantity increases from 10 to 13 pizzas per hour. What does this scenario illustrate about the demand curve?

Accepted Answer

The demand curve is relatively inelastic.

Question 5

Which of the following equations correctly represents the price elasticity of demand?

Accepted Answer

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

Question 6

A pizza producer wants to compare the demand for pizza with the demand for soft drinks. Why is elasticity a better measure than slope for this comparison?

Accepted Answer

Elasticity is independent of the units of measurement, allowing for meaningful comparisons across different goods.

Question 7

If the price of pizza falls by a small amount and the quantity demanded increases by a large amount after a supply increase, what can you infer about the demand for pizza?

Accepted Answer

The demand for pizza is elastic.

Question 8

Which scenario best illustrates a good with inelastic demand?

Accepted Answer

A large decrease in price leads to a small increase in quantity demanded.

Question 9

Suppose the price of a good decreases by 10% and the quantity demanded increases by 5%. What is the price elasticity of demand, and how would you classify the demand?

Accepted Answer

$$E_d = \frac{5\%}{10\%} = 0.5$$, which means demand is inelastic.

Question 10

Which of the following statements is TRUE regarding the relationship between elasticity and the effect of a supply increase on equilibrium price and quantity?

Accepted Answer

If demand is inelastic, a supply increase will cause a large fall in price and a small increase in quantity.

Question 11

A local pizza market experiences an increase in supply, shifting the supply curve from $$S_0 to$$ $$S_1. If $$the demand curve is steep, what does this indicate about the price elasticity of demand?

Accepted Answer

The price elasticity of demand is low.

Question 12

Why is elasticity considered a 'units-free' measure?

Accepted Answer

Because it allows comparison across goods with different units of measurement.

Question 13

If a large pizza franchise opens and increases the supply of pizza, but the equilibrium quantity increases only slightly, what does this suggest about the demand for pizza?

Accepted Answer

Demand is relatively inelastic.

Question 14

Which of the following is NOT a reason why slope is an inadequate measure for comparing demand responsiveness across different goods?

Accepted Answer

Slope can be positive or negative.

Question 15

If the demand for a good is elastic, what will happen to total revenue if the price decreases?

Accepted Answer

Total revenue will increase.

Price Elasticity of Demand: Responsiveness of Quantity Demanded to Price Changes

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