Question 1

Suppose that when the price rises by 10% for a particular good,the quantity demanded of that good falls by 20%.The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Using the given information, we can calculate the price elasticity of demand as:

Elasticity = (% change in quantity demanded) / (% change in price)
Elasticity = -20% / 10%
Elasticity = -2

Since the elasticity is negative (which is expected, since the law of demand states that quantity demanded falls as price rises), we can take the absolute value to get the actual elasticity, which is 2.0. Therefore, the statement is true.

Question 2

The flatter the demand curve that passes through a given point,the more elastic the demand.

Accepted Answer

This statement is true. A flatter demand curve indicates that a small change in price leads to a larger change in quantity demanded, which is the definition of elasticity. In contrast, a steeper demand curve indicates that a change in price would result in a smaller change in quantity demanded, indicating inelastic demand.

Question 3

Price elasticity of demand along a linear,downward-sloping demand curve decreases as price falls.

Accepted Answer

This is because as price falls, the percentage change in quantity demanded becomes smaller relative to the percentage change in price. This means that the demand becomes less responsive to changes in price, resulting in a lower price elasticity of demand.

Question 4

The midpoint method is used to calculate elasticity between two points because it gives the same answer regardless of the direction of the change.

Accepted Answer

The midpoint method is used to calculate elasticity between two points because it provides a more accurate measure of the percentage change in quantity and price by taking the average of the starting and ending point. It gives the same answer regardless of whether there is an increase or decrease in quantity or price because it measures elasticity in a symmetrical manner.

Question 5

Even the demand for a necessity such as gasoline will respond to a change in price,especially over a longer time horizon.

Accepted Answer

This is because over a longer period of time, consumers have the opportunity to adjust their behavior and make changes such as purchasing more fuel-efficient vehicles, carpooling, or using public transportation, all of which can reduce their need for gasoline. As a result, changes in the price of gasoline can have a significant impact on demand over time.

Question 6

The flatter the demand curve that passes through a given point,the more inelastic the demand.

Accepted Answer

This statement is actually false. The flatter the demand curve passing through a point, the more elastic the demand. Elasticity is determined by the percentage change in quantity demanded relative to a percentage change in price. When the demand curve is flatter, it means that a small change in price will cause a larger percentage change in quantity demanded, making the demand more elastic. Conversely, a steeper demand curve signifies a smaller percentage change in quantity demanded for the same percentage change in price, representing a more inelastic demand.

Question 7

Suppose that when the price rises by 20% for a particular good,the quantity demanded of that good falls by 10%.The price elasticity of demand for this good is equal to 2.0.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which in this case is -10% / 20% = -0.5, not 2.0.

Question 8

A linear,downward-sloping demand curve has a constant elasticity but a changing slope.

Accepted Answer

A linear, downward-sloping demand curve has a changing elasticity and a constant slope. The elasticity is higher at higher prices and lower at lower prices, but the slope remains constant.

Question 9

Demand for a good is said to be inelastic if the quantity demanded increases slightly when the price falls by a large amount.

Accepted Answer

The answer of Demand for a good is said to...

Question 10

Price elasticity of demand along a linear,downward-sloping demand curve increases as price falls.

Accepted Answer

Price elasticity of demand along a linear, downward-sloping demand curve actually decreases as price falls, because the proportionate change in quantity demanded becomes smaller relative to the proportionate change in price as one moves down the curve.

Question 11

If we observe that when the price of chocolate increases by 10%,quantity demanded falls by 5%,then the demand for chocolate is price inelastic.

Accepted Answer

The demand for chocolate is price inelastic because the percentage change in quantity demanded (5%) is less than the percentage change in price (10%), indicating that consumers' demand for chocolate is relatively insensitive to price changes.

Question 12

The demand for soap is more elastic than the demand for Dove soap.

Accepted Answer

This statement is not necessarily true. The elasticity of demand for a specific brand of soap (such as Dove soap) depends on several factors, including the availability of substitutes, brand loyalty, and the price of the product in relation to consumers' income. It is possible that the demand for a generic soap product may be more elastic than the demand for a specific brand like Dove, or vice versa.

Question 13

Necessities tend to have inelastic demands,whereas luxuries tend to have elastic demands.

Accepted Answer

This statement is generally true. Necessities, such as food and shelter, are essential for survival and therefore have a relatively constant demand regardless of changes in price. On the other hand, luxuries, such as expensive cars or designer clothes, are not essential for survival and their demand is more likely to change with changes in price.

Question 14

The demand for Rice Krispies is more elastic than the demand for cereal in general.

Accepted Answer

Rice Krispies is a specific brand of cereal and therefore has more substitutes compared to cereal in general. This makes its demand more elastic as consumers can easily switch to other brands or types of cereal if the price of Rice Krispies increases too much.

Question 15

The demand for desserts tends to be more inelastic than the demand for red velvet cake.

Accepted Answer

The demand for desserts is a broader category and includes a wide variety of options, making it less sensitive to price changes than the demand for a specific type of dessert like red velvet cake, which has more readily available substitutes.

Question 16

The demand for gasoline will respond more to a change in price over a period of five weeks than over a period of five years.

Accepted Answer

Over a longer period, such as five years, consumers have more time to adjust their behavior and make significant changes, such as buying more fuel-efficient vehicles or using alternative modes of transportation, thus the demand for gasoline is more elastic and responsive to price changes over five years than over five weeks.

Question 17

If we observe that when the price of chocolate decreases by 10%,quantity demanded increases by 25%,then the demand for chocolate is price elastic.

Accepted Answer

The increase in quantity demanded (25%) is greater than the decrease in price (10%), indicating that the demand for chocolate is responsive to changes in price and therefore price elastic.

Question 18

Demand is inelastic if the price elasticity of demand is greater than 1.

Accepted Answer

If the price elasticity of demand is greater than 1, it is considered elastic demand, not inelastic. Inelastic demand refers to a situation where the price elasticity of demand is less than 1.

Question 19

If the price of calculators increases by 15 percent and the quantity demanded per week falls by 45 percent as a result,then the price elasticity of demand is 3.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, the price increased by 15 percent and quantity demanded fell by 45 percent, resulting in a price elasticity of demand of 3 (45/15=3). Therefore, the statement is true.

Question 20

Demand for a good is said to be inelastic if the quantity demanded increases substantially when the price falls by a small amount.

Accepted Answer

Demand for a good is said to be inelastic if the quantity demanded changes very little or not at all when the price changes. In contrast, demand for a good is said to be elastic if the quantity demanded changes significantly in response to a change in price.

Quiz 5: Elasticity and Its Application