Question 1

Demand is said to be inelastic if the
A) quantity demanded changes proportionately more than price.
B) price changes proportionately more than income.
C) quantity demanded changes proportionately less than price.
D) quantity demanded changes proportionately the same as price.

Accepted Answer

Inelastic demand means that there is a relatively small change in quantity demanded in response to a change in price. This means that quantity demanded changes proportionately less than price.

Question 2

Demand is said to be inelastic if
A) buyers respond substantially to changes in the price of the good.
B) demand shifts only slightly when the price of the good changes.
C) the quantity demanded changes only slightly when the price of the good changes.
D) the price of the good responds only slightly to changes in demand.

Accepted Answer

Inelastic demand means that the quantity demanded changes only slightly when the price of the good changes. This indicates that buyers are not very responsive to changes in price and are willing to pay a relatively high price for the good.

Question 3

A good will have a more inelastic demand,the
A) greater the availability of close substitutes.
B) broader the definition of the market.
C) longer the period of time.
D) more it is regarded as a luxury.

Accepted Answer

The answer of A good will have a more inelastic...

Question 4

Which of the following is likely to have the most price inelastic demand?
A) lattés
B) filet mignon
C) Grey Goose® vodka
D) milk

Accepted Answer

The answer of Which of the following is likely to...

Question 5

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then the
A) demand for the good is said to be elastic.
B) demand for the good is said to be inelastic.
C) law of demand does not apply to the good.
D) demand curve for the good shifts only slightly in response to a change in price.

Accepted Answer

When the quantity demanded of a certain good responds only slightly to a change in price, the demand for the good is said to be inelastic. This means that consumers are not very responsive to changes in price and will still purchase the good even if the price increases. An example of an inelastic good is gasoline, where consumers still need to purchase it even if the price increases.

Question 6

Other things equal,the demand for a good tends to be more inelastic,the
A) fewer the available substitutes.
B) longer the time period considered.
C) more the good is considered a luxury good.
D) more narrowly defined is the market for the good.

Accepted Answer

When there are fewer available substitutes for a good, consumers have limited options and are more likely to continue purchasing the good even if the price increases. This makes the demand for the good more inelastic. On the other hand, if there are many substitutes available, consumers can easily switch to a cheaper substitute if the price of the good increases. This makes the demand for the good more elastic.

Question 7

Suppose the price of potato chips decreases from $1.45 to $1.25 and,as a result,the quantity of potato chips demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for potato chips in the given price range is
A) 2.00.
B) 1.55.
C) 1.00.
D) 0.64.

Accepted Answer

The answer of Suppose the price of potato chips decreases...

Question 8

Which of the following is likely to have the most price inelastic demand?
A) athletic shoes
B) running shoes
C) Nike running shoes
D) Nike Shox running shoes

Accepted Answer

The answer of Which of the following is likely to...

Question 9

There are very few,if any,good substitutes for motor oil.Therefore,the
A) demand for motor oil would tend to be inelastic.
B) demand for motor oil would tend to be elastic.
C) demand for motor oil would tend to respond strongly to changes in prices of other goods.
D) supply of motor oil would tend to respond strongly to changes in people's tastes for large cars relative to their tastes for small cars.

Accepted Answer

Since there are very few substitutes for motor oil, consumers have little choice but to continue purchasing it even if the price increases, thus making the demand for motor oil tend to be inelastic.

Question 10

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?
A) a 7.5 increase in the price of the good
B) a 13.33 percent increase in the price of the good
C) an increase in the price of the good from $7.50 to $10
D) an increase in the price of the good from $10 to $17.50

Accepted Answer

Using the midpoint method, the formula for price elasticity of demand is:
E = [(Q2 - Q1) / ((Q1 + Q2)/2)] / [(P2 - P1) / ((P1 + P2)/2)]

If we know that E = 0.75 and want to solve for the percentage change in quantity demanded (Q2 - Q1) given a percentage change in price (P2 - P1), we can rearrange the formula as:
(Q2 - Q1) / ((Q1 + Q2)/2) = 0.75 x [(P2 - P1) / ((P1 + P2)/2)]

Simplifying further, we get:
(Q2 - Q1) / (Q1 + Q2) = 0.75 x (P2 - P1) / (P1 + P2)

Assuming a 10% decrease in quantity demanded, we can say that:
(Q2 - Q1) / (Q1 + Q2) = -0.10

Substituting these values, we get:
-0.10 = 0.75 x (P2 - P1) / (P1 + P2)

Solving for (P2 - P1) / P1, we get:
(P2 - P1) / P1 = -0.5714

Therefore, a 10% decrease in quantity demanded can be achieved by a 13.33% increase in price, which is option B.

Question 11

When the price of bubble gum is $0.50,the quantity demanded is 400 packs per day.When the price falls to $0.40,the quantity demanded increases to 600.Given this information and using the midpoint method,we know that the demand for bubble gum is
A) inelastic.
B) elastic.
C) unit elastic.
D) perfectly inelastic.

Accepted Answer

Using the midpoint method, we can calculate the price elasticity of demand as:

(price change / midpoint price) / (quantity change / midpoint quantity)

Where the midpoint price is the average of the two prices ($0.50 and $0.40) and the midpoint quantity is the average of the two quantities demanded (400 and 600):

(price change) = ($0.40 - $0.50) / (($0.40 + $0.50) / 2) = -0.2 / 0.45 = -0.44
(quantity change) = (600 - 400) / ((600 + 400) / 2) = 200 / 500 = 0.4

Now we plug these values into the formula:

(price change / midpoint price) / (quantity change / midpoint quantity) = (-0.44 / 0.45) / (0.4 / 0.5) = -0.98

Since the price elasticity of demand is greater than 1 in absolute value, we know that the demand for bubble gum is elastic.

Question 12

For a good that is a necessity,demand
A) tends to be inelastic.
B) tends to be elastic.
C) has unit elasticity.
D) cannot be represented by a demand curve in the usual way.

Accepted Answer

Necessities are goods that consumers cannot do without, regardless of the price. Therefore, consumers are willing to pay a high price for such goods, and the demand tends to be inelastic. Even if the price of a necessity increases, consumers will still continue to purchase it.

Question 13

The midpoint method is used to compute elasticity because it
A) automatically computes a positive number instead of a negative number.
B) results in an elasticity that is the same as the slope of the demand curve.
C) gives the same answer regardless of the direction of change.
D) automatically rounds quantities to the nearest whole unit.

Accepted Answer

The midpoint method calculates elasticity by taking the average of two points and dividing the percentage change in quantity demanded by the percentage change in price, regardless of whether the price increases or decreases. This results in the same numerical value of elasticity regardless of the direction of change.

Question 14

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 2.Which of the following events is consistent with a 0.1 percent increase in the price of the good?
A) The quantity of the good demanded decreases from 250 to 150.
B) The quantity of the good demanded decreases from 200 to 100.
C) The quantity of the good demanded decreases by 0.05 percent.
D) The quantity of the good demanded decreases by 0.2 percent.

Accepted Answer

Using the midpoint method, the formula for calculating price elasticity of demand is:
Price elasticity of demand = (ΔQ/((Q1+Q2)/2)) ÷ (ΔP/((P1+P2)/2))
where:
ΔQ = change in quantity demanded
Q1 and Q2 = initial and new quantity demanded
ΔP = change in price
P1 and P2 = initial and new price

We are given that the price elasticity of demand is approximately 2. Therefore, we know that the percentage change in quantity demanded will be twice the percentage change in price. Mathematically:
Price elasticity of demand = 2 = (ΔQ/((Q1+Q2)/2)) ÷ (0.001)
Simplifying and solving for ΔQ, we get:
ΔQ = 0.001 × 2 × ((Q1+Q2)/2)
ΔQ = 0.001(Q1+Q2)

Now, we can use this formula to calculate the change in quantity demanded for each scenario:

Scenario A:
ΔQ = 0.001(250+150) = 0.4
This means that quantity demanded decreases by 0.4 units, which is not consistent with a 0.1 percent increase in price.

Scenario B:
ΔQ = 0.001(200+100) = 0.3
This means that quantity demanded decreases by 0.3 units, which is not consistent with a 0.1 percent increase in price.

Scenario C:
ΔQ = 0.0005Q1 = 0.0005(average of 250 and 150) = 0.1
This means that quantity demanded decreases by 0.1 units, which is equivalent to a 0.05 percent decrease in quantity demanded. Therefore, Scenario C is not consistent with a 0.1 percent increase in price.

Scenario D:
ΔQ = 0.001(150+100) = 0.25
This means that quantity demanded decreases by 0.25 units, which is equivalent to a 0.2 percent decrease in quantity demanded. Therefore, Scenario D is consistent with a 0.1 percent increase in price.

Question 15

If demand is price inelastic,then
A) buyers do not respond much to a change in price.
B) buyers respond substantially to a change in price,but the response is very slow.
C) buyers do not alter their quantities demanded much in response to advertising,fads,or general changes in tastes.
D) the demand curve is very flat.

Accepted Answer

When demand is price inelastic, buyers do not respond much to a change in price. This means that even if the price of a product increases, buyers will not significantly reduce their quantity demanded. Similarly, if the price of a product decreases, buyers will not significantly increase their quantity demanded. The demand curve in this case is very steep.

Question 16

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is
A) inelastic.
B) unit elastic.
C) elastic.
D) highly responsive to changes in income.

Accepted Answer

A person who takes a prescription drug to control high cholesterol is likely to have a strong demand for that drug even if the price increases because it is necessary for their health. Therefore, the demand is inelastic.

Question 17

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is
A) inelastic and equal to 0.67.
B) elastic and equal to 0.67.
C) inelastic and equal to 1.50.
D) elastic and equal to 1.50.

Accepted Answer

The answer of Suppose that quantity demand rises by 10%...

Question 18

There are very few,if any,good substitutes for automotive tires.Therefore,the demand for automotive tires would tend to be
A) elastic.
B) unit elastic.
C) inelastic.
D) highly responsive to changes in income as well as changes in prices.

Accepted Answer

The statement suggests that there are no good substitutes for automotive tires, which means that consumers have limited options to switch to if there is a price increase. This indicates that the demand for automotive tires is likely to be inelastic.

Question 19

Demand is inelastic if the price elasticity of demand is
A) less than 1.
B) equal to 1.
C) greater than 1.
D) equal to 0.

Accepted Answer

If the price elasticity of demand is less than 1, then a change in price will result in a proportionally smaller change in quantity demanded, indicating that demand is inelastic.

Question 20

Studies indicate that the price elasticity of demand for cigarettes is about 0.4.A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.According to the midpoint method,the government policy should have reduced smoking by
A) 30%.
B) 40%.
C) 80%.
D) 250%.

Accepted Answer

The formula for the midpoint method is:
((Q2-Q1)/((Q1+Q2)/2)) / ((P2-P1)/((P1+P2)/2))

Given:
P1=$2
P2=$6
E=0.4

Now, using the midpoint formula:
((Q2-Q1)/((Q1+Q2)/2)) / ((P2-P1)/((P1+P2)/2)) = E

((Q2-Q1)/((Q1+Q2)/2)) / ((6-2)/((2+6)/2)) = 0.4

Simplifying the above equation, we get:

(Q2-Q1)/4 = 0.4(Q1+Q2)/2

Solving for Q2-Q1, we get:

Q2-Q1 = 0.4(Q1+Q2)*(4/2)

Q2-Q1 = 0.4(Q1+Q2)*2

Q2-Q1 = 0.8(Q1+Q2)

Q2-Q1 = 0.8Q1+0.8Q2

Q2-Q1-0.8Q2 = 0.8Q1

Q2 - 1.8Q1 = Q1

Q2 = 2.8Q1

So, the percentage change in smoking is:

%ΔQ = ((Q2-Q1)/Q1)*100
%ΔQ = ((2.8-1)/1)*100
%ΔQ = 180%

Thus, the policy should have reduced smoking by 40%, which is the percentage change in quantity demanded.

Quiz 5: Elasticity and Its Application

Demand is said to be inelastic if the

Demand is said to be inelastic if

A good will have a more inelastic demand,the

Which of the following is likely to have the most price inelastic demand?

If the quantity demanded of a certain good responds only slightly to a change in the price of the good,then the

Other things equal,the demand for a good tends to be more inelastic,the

Suppose the price of potato chips decreases from $1.45 to $1.25 and,as a result,the quantity of potato chips demanded increases from 2,000 to 2,200.Using the midpoint method,the price elasticity of demand for potato chips in the given price range is

Which of the following is likely to have the most price inelastic demand?

There are very few,if any,good substitutes for motor oil.Therefore,the

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 0.75.Which of the following events is consistent with a 10 percent decrease in the quantity of the good demanded?

When the price of bubble gum is $0.50,the quantity demanded is 400 packs per day.When the price falls to $0.40,the quantity demanded increases to 600.Given this information and using the midpoint method,we know that the demand for bubble gum is

For a good that is a necessity,demand

The midpoint method is used to compute elasticity because it

Using the midpoint method,the price elasticity of demand for a good is computed to be approximately 2.Which of the following events is consistent with a 0.1 percent increase in the price of the good?

If demand is price inelastic,then

A person who takes a prescription drug to control high cholesterol most likely has a demand for that drug that is

Suppose that quantity demand rises by 10% as a result of a 15% decrease in price.The price elasticity of demand for this good is

There are very few,if any,good substitutes for automotive tires.Therefore,the demand for automotive tires would tend to be

Demand is inelastic if the price elasticity of demand is

Studies indicate that the price elasticity of demand for cigarettes is about 0.4.A government policy aimed at reducing smoking changed the price of a pack of cigarettes from $2 to $6.According to the midpoint method,the government policy should have reduced smoking by