Question 1

If the price elasticity of demand is found to be -6, then demand is:
A) price inelastic.
B) price elastic.
C) unit price elastic.
D) horizontal.

Accepted Answer

A price elasticity of demand coefficient greater than 1 indicates price elasticity, meaning that a change in price will have a significant impact on quantity demanded. A coefficient of -6 indicates a high degree of price elasticity, which means that demand will be very responsive to changes in price. Therefore, the correct choice is B, price elastic.

Question 2

The price elasticity of demand for soft drinks has been estimated to be -0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacture and bottling), how will that affect total expenditures on soft drinks, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall
C) total expenditures will rise
D) people will buy Pepsi instead of Coke

Accepted Answer

Since the price elasticity of demand for soft drinks is inelastic (-0.55), an increase in the price due to a tax on imported sugar will lead to a smaller percentage decrease in quantity demanded. Therefore, total expenditures on soft drinks (price times quantity) will rise.

Question 3

The price elasticity of demand for lettuce has been estimated to be -2.58. If an insect infestation destroys 10 percent of the nation's lettuce crop, how will that affect total expenditures on lettuce, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall
C) total expenditures will rise
D) not enough information is given to answer the question

Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. Therefore, if the price of lettuce remains the same and the quantity demanded decreases by 10%, we can use the following formula to estimate the percentage change in price:

-2.58 = % change in quantity demanded / (-10%) 
% change in quantity demanded = (-2.58) * (-10%) = 25.8%

So, if the quantity demanded decreases by 10%, the price should decrease by approximately 25.8% to maintain total expenditures. Since a price decrease of this magnitude is unlikely, total expenditures on lettuce will fall as a result of the insect infestation.

Question 4

The price elasticity of demand for cabbage has been estimated to be -0.25. If an insect infestation destroys 20 percent of the nation's cabbage crop, how will that affect total expenditures on cabbage, all other things unchanged?
A) total expenditures will rise
B) total expenditures will fall
C) total expenditures will remain unchanged
D) not enough information is given to answer the question

Accepted Answer

The price elasticity of demand for cabbage is inelastic (-0.25), meaning that the percentage change in quantity demanded is less than the percentage change in price. If 20% of the cabbage crop is destroyed, supply decreases, leading to a price increase. Since demand is inelastic, the total expenditure on cabbage (price x quantity) will rise, as the proportional increase in price outweighs the proportional decrease in quantity demanded.

Question 5

If the percentage change in quantity demanded divided by the percentage change in price is:
A) positive, demand is price elastic.
B) negative, demand is price inelastic.
C) less than 1 (absolute value), demand is price elastic.
D) greater than 1 (absolute value), demand is price elastic.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. If this value is greater than 1 (in absolute terms), it means that the quantity demanded changes by a greater percentage than the price does, indicating price elasticity. Choices A and B are incorrect because the sign of the elasticity (positive or negative) indicates the direction of the relationship, not elasticity. Choice C is incorrect because if the absolute value is less than 1, it indicates price inelasticity, not elasticity.

Question 6

If total revenue goes up when price falls, the price elasticity of demand is said to be:
A) price inelastic.
B) unit price elastic.
C) price elastic.
D) positive.

Accepted Answer

If total revenue goes up when price falls, it means that the percentage increase in quantity demanded is greater than the percentage decrease in price. This indicates that the demand is responsive to price changes, thus the price elasticity of demand is said to be price elastic.

Question 7

Demand is price inelastic if:
A) the price of the good responds slightly to a quantity change.
B) the demand curve shifts very little when a demand shifter changes.
C) the percentage change in quantity demanded is relatively small in response to a relatively large percentage change in price.
D) all of the above are true.

Accepted Answer

Price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. If a small change in the price results in a relatively large change in the quantity demanded, then demand is said to be price elastic. Conversely, if a large change in price results in a relatively small change in the quantity demanded, then demand is said to be price inelastic. Therefore, option C is correct as it correctly defines price inelasticity.

Question 8

The price elasticity of demand for fresh tomatoes has been estimated to be -2.22. If a new insecticide and fertilizer treatment yields a 20 percent increase in the nation's fresh tomato crop, how will that affect total expenditures on fresh tomatoes, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall
C) total expenditures will rise
D) not enough information is given to answer the question

Accepted Answer

The answer of The price elasticity of demand for fresh...

Question 9

If the absolute value of price elasticity is greater than 1, this means the demand curve in that region is:
A) price elastic.
B) price inelastic.
C) unit price elastic.
D) upward sloping.

Accepted Answer

A price elasticity greater than 1 is indicative of a price elastic demand curve, meaning that changes in price will have a relatively strong impact on the quantity demanded by consumers.

Question 10

When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be:
A) price inelastic.
B) unit price elastic.
C) price elastic.
D) perfectly inelastic.

Accepted Answer

When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be price elastic. This means that small changes in price lead to large changes in quantity demanded, indicating that consumers are highly responsive to changes in price.

Question 11

Which of the following is not true regarding a price elastic demand curve?
A) Total revenue increases when price falls.
B) The absolute value of price elasticity is a fraction less than 1.
C) The absolute value of price elasticity is greater than 1.
D) The percentage changes in quantity exceed the percentage changes in price for any small change in price.

Accepted Answer

A price elastic demand curve means that the absolute value of price elasticity is greater than 1 (C), indicating that the percentage changes in quantity demanded exceed the percentage changes in price (D). This typically results in an increase in total revenue when the price falls (A), because the proportionate increase in quantity demanded more than offsets the proportionate decrease in price. Therefore, statement B is not true for a price elastic demand curve, as it incorrectly suggests that the absolute value of price elasticity is a fraction less than 1, which would describe a price inelastic demand instead.

Question 12

If the price elasticity of demand is found to be -3/4, then demand is:
A) price inelastic.
B) price elastic.
C) unit price elastic.
D) positively sloped.

Accepted Answer

When the absolute value of the price elasticity of demand is less than 1 (as in -3/4), demand is considered price inelastic, meaning that percentage changes in price lead to smaller percentage changes in quantity demanded.

Question 13

The price elasticity of demand for ground beef has been estimated to be -1.0. If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on hamburger, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall by more than 1 percent
C) demand will fall by 1 percent, but total expenditures will fall by less than 1 percent
D) total expenditures will rise

Accepted Answer

The price elasticity of demand for ground beef being -1.0 indicates unitary elasticity, meaning that a percentage change in price leads to an equal percentage change in quantity demanded. If supply decreases due to mad cow disease, causing prices to rise, the total expenditure on hamburger (price times quantity) remains unchanged because the proportional increase in price is offset by a proportional decrease in quantity demanded.

Question 14

The price elasticity of demand for gasoline in the long run has been estimated to be -1.5. If an extended war in the Middle-East caused the price of oil (from which gasoline is made) to increase and remain high for a decade, how would that affect total expenditures on gasoline in the long run, all other things unchanged?
A) total expenditures would rise
B) total expenditures would fall
C) total expenditures would remain unchanged
D) not enough information is given to answer the question

Accepted Answer

Since the price elasticity of demand for gasoline in the long run is -1.5, a 10% increase in the price of gasoline would lead to a 15% decrease in the quantity demanded. Therefore, if the price of oil remains high for a decade, the quantity demanded of gasoline is likely to decrease significantly, leading to a decrease in total expenditures on gasoline.

Question 15

The price elasticity of demand for gasoline in the short run has been estimated to be -0.1. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things unchanged?
A) demand will stay the same, but total expenditures will fall
B) demand will decrease, but total expenditures will rise
C) total expenditures will remain unchanged
D) demand will not change, but total expenditures will rise

Accepted Answer

The answer of The price elasticity of demand for gasoline...

Question 16

The price elasticity of demand for milk has been estimated to be somewhere between -0.49 and -0.63. If a new system of feeding and milking cows yields a 15 percent increase in the production of milk throughout the country, how will that affect total expenditures on milk, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall
C) total expenditures will rise
D) not enough information is given to answer the question

Accepted Answer

The price elasticity of demand for milk is between -0.49 and -0.63, indicating that demand is relatively inelastic. Therefore, the 15% increase in production will likely result in a decrease in price of milk, and with inelastic demand, this will lead to a proportionately smaller increase in quantity demanded, resulting in a decrease in total expenditures on milk.

Question 17

The price elasticity of demand for peanuts has been estimated to be -0.38. If an insect infestation destroys 20 percent of the nation's peanut crop, how will that affect total expenditures on peanuts, all other things unchanged?
A) total expenditures will remain unchanged
B) total expenditures will fall
C) total expenditures will rise
D) not enough information is given to answer the question

Accepted Answer

The price elasticity of demand for peanuts is inelastic (-0.38), meaning that the percentage change in quantity demanded is less than the percentage change in price. If 20% of the peanut crop is destroyed, supply decreases, leading to higher prices. Since demand is inelastic, the increase in price will lead to a less than proportional decrease in quantity demanded, resulting in an increase in total expenditures on peanuts.

Question 18

When the percentage change in quantity demanded is less than the percentage change in price:
A) demand is price elastic.
B) demand is price inelastic.
C) an increase in price will result in lower total revenue.
D) total revenue will be zero at the midpoint of a linear demand curve.

Accepted Answer

When the percentage change in quantity demanded is less than the percentage change in price, it means demand is not very responsive to changes in price, which indicates price inelastic demand. This situation also means an increase in price will result in higher total revenue. Option A and C are incorrect, and option D applies only to a linear demand curve, which may not always be the case.

Question 19

If the price of a good is increased by 15 percent and the quantity demanded falls by 20 percent, the price elasticity of demand is:
A) price elastic.
B) price inelastic.
C) unit price elastic.
D) normal.

Accepted Answer

When the price elasticity of demand is greater than 1, demand is considered to be price elastic. In this scenario, the percentage change in quantity demanded (-20%) is greater than the percentage change in price (+15%), indicating that demand is responsive to changes in price and therefore price elastic.

Question 20

Determining whether the price elasticity of demand is price elastic, unit price elastic, or price inelastic is done by:
A) comparing the percentage change in quantity demanded to the percentage change in price.
B) examining the ratio of the change in quantity to the change in price.
C) examining the slope of the demand curve.
D) examining the ratio of the change in price to the change in quantity

Accepted Answer

The price elasticity of demand is determined by comparing the percentage change in quantity demanded to the percentage change in price. This gives us a ratio between the two, which can help us determine whether the demand for a product is price elastic (where the percentage change in quantity demanded is greater than the percentage change in price), unit price elastic (where the percentage change in quantity demanded is equal to the percentage change in price), or price inelastic (where the percentage change in quantity demanded is less than the percentage change in price).

Quiz 5: Elasticity

If the price elasticity of demand is found to be -6, then demand is:

The price elasticity of demand for soft drinks has been estimated to be -0.55. If the government enacts a major increase in the tax on imported sugar (a major ingredient in soft drink manufacture and bottling) , how will that affect total expenditures on soft drinks, all other things unchanged?

The price elasticity of demand for lettuce has been estimated to be -2.58. If an insect infestation destroys 10 percent of the nation's lettuce crop, how will that affect total expenditures on lettuce, all other things unchanged?

The price elasticity of demand for cabbage has been estimated to be -0.25. If an insect infestation destroys 20 percent of the nation's cabbage crop, how will that affect total expenditures on cabbage, all other things unchanged?

If the percentage change in quantity demanded divided by the percentage change in price is:

If total revenue goes up when price falls, the price elasticity of demand is said to be:

Demand is price inelastic if:

The price elasticity of demand for fresh tomatoes has been estimated to be -2.22. If a new insecticide and fertilizer treatment yields a 20 percent increase in the nation's fresh tomato crop, how will that affect total expenditures on fresh tomatoes, all other things unchanged?

If the absolute value of price elasticity is greater than 1, this means the demand curve in that region is:

When the percentage change in quantity demanded is larger than the percentage change in price, demand is said to be:

Which of the following is not true regarding a price elastic demand curve?

If the price elasticity of demand is found to be -3/4, then demand is:

The price elasticity of demand for ground beef has been estimated to be -1.0. If mad cow disease strikes the United States and a large percentage of the cattle are removed from the market, how will that affect total expenditures on hamburger, all other things unchanged?

The price elasticity of demand for gasoline in the short run has been estimated to be -0.1. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total expenditures on gasoline in the short run, all other things unchanged?

The price elasticity of demand for milk has been estimated to be somewhere between -0.49 and -0.63. If a new system of feeding and milking cows yields a 15 percent increase in the production of milk throughout the country, how will that affect total expenditures on milk, all other things unchanged?

The price elasticity of demand for peanuts has been estimated to be -0.38. If an insect infestation destroys 20 percent of the nation's peanut crop, how will that affect total expenditures on peanuts, all other things unchanged?

When the percentage change in quantity demanded is less than the percentage change in price:

If the price of a good is increased by 15 percent and the quantity demanded falls by 20 percent, the price elasticity of demand is:

Determining whether the price elasticity of demand is price elastic, unit price elastic, or price inelastic is done by: