Question 1

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 good substitutes for motor oil, consumers may continue to purchase it even if the price increases, making the demand for motor oil inelastic.

Question 2

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is
A)inelastic.
B)elastic.
C)unit elastic.
D)perfectly inelastic.

Accepted Answer

Using the midpoint method formula:

%ΔQd = (ΔQd / ((Q1 + Q2) / 2)) ÷ (%ΔP = (ΔP / ((P1 + P2) / 2)))

%ΔQd = ((700 - 400) / ((700 + 400) / 2)) ÷ (%ΔP = (10 - 15) / ((10 + 15) / 2))

%ΔQd = (300 / 550) ÷ (-5 / 12.5)

%ΔQd = 0.5454545 ÷ -0.4

%ΔQd = -1.3636364

Note: The negative sign indicates an inverse relationship between price and quantity demanded.

Since the absolute value of %ΔQd is greater than 1, demand is elastic.

Question 3

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

Since the price elasticity of demand is 2, a 0.1 percent increase in price would result in a decrease in quantity demanded by 2 times 0.1 percent, or 0.2 percent. Therefore, the only option consistent with this is choice D, where the quantity demanded decreases by 0.2 percent. Choices A and B depict larger decreases in quantity demanded, while choice C only represents a tiny decrease in quantity, which is not consistent with a price elasticity of 2.

Question 4

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is
A)1.14.
B)1.
C)0.25.
D)0.13.

Accepted Answer

The answer of When the price of a bracelet was...

Question 5

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 6

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 demand for automotive tires would tend to be inelastic because there are very few, if any, good substitutes for automotive tires. This means that consumers are willing to pay relatively high prices for tires because they have no other options. Additionally, changes in income are unlikely to have a significant effect on the demand for tires, further contributing to their inelasticity.

Question 7

Table 5-1 
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
A)A is laundry detergent and B is Tide.
B)A is Diet Pepsi and B is soda.
C)A is food and B is a yacht.
D)A is toilet paper and B is candles.

Accepted Answer

The elasticities given for product A and B are -2.5 and -1.5, respectively. Since the elasticity for A is larger in magnitude than that of B, A is more elastic than B. This suggests that A is a more generic product than B. Therefore, it is reasonable to assume that A is Diet Pepsi, a generic soda, and B is a specific brand of soda. Choice A cannot be correct, as laundry detergent and Tide are not examples of a generic product and a specific brand. Choice C is not consistent with the elasticities given, as a yacht is a luxury good with a very high price elasticity of demand, and thus it is not comparable to a food item with a low elasticity. Choice D is also not consistent with the elasticities given, as toilet paper is a necessary good with a low elasticity of demand, while candles are a luxury good with a high elasticity of demand.

Question 8

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about
A)0.22.
B)0.67.
C)1.33.
D)1.50.

Accepted Answer

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

Using the midpoint method:
% change in quantity demanded = (change in quantity demanded / average quantity demanded) x 100%
= [(80-100) / ((80+100)/2)] x 100%
= -20/90 x 100%
= -22.22%

% change in price = (change in price / average price) x 100%
= [(7-5) / ((7+5)/2)] x 100%
= 2/6 x 100%
= 33.33%

Price elasticity of demand = (-22.22% / 33.33%)
= -0.6666
= 0.67 (approx.)

Therefore, the price elasticity of demand is about 0.67. Option B is the correct choice.

Question 9

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is
A)inelastic.
B)elastic.
C)unit elastic.
D)perfectly inelastic.

Accepted Answer

The answer of When the price of candy bars is...

Question 10

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is
A)0.33.
B)0.45.
C)2.20.
D)3.00.

Accepted Answer

Using the midpoint method, we have:

Price elasticity of demand = [(Q2 - Q1)/((Q1 + Q2)/2)] / [(P2 - P1)/((P1 + P2)/2)]

Plugging in the numbers, we get:

Price elasticity of demand = [(300 - 200)/((200 + 300)/2)] / [($2.50 - $3.00)/(($3.00 + $2.50)/2)] = [100/250] / [-0.50/2.75] = 2.20

Therefore, the price elasticity of demand for tortilla chips in the given price range is 2.20.

Question 11

Economists compute the price elasticity of demand as the
A)percentage change in price divided by the percentage change in quantity demanded.
B)change in quantity demanded divided by the change in the price.
C)percentage change in quantity demanded divided by the percentage change in price.
D)percentage change in quantity demanded divided by the percentage change in income.

Accepted Answer

The price elasticity of demand is computed by dividing the percentage change in quantity demanded by the percentage change in price. This measures the responsiveness of quantity demanded to changes in price.

Question 12

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the
A)demand for ice cream cones in this price range is elastic.
B)demand for ice cream cones in this price range is inelastic.
C)demand for ice cream cones in this price range is unit elastic.
D)price elasticity of demand for ice cream cones in this price range is 0.

Accepted Answer

The midpoint approach formula for price elasticity of demand is [(Q2-Q1)/((Q1+Q2)/2)]/[(P2-P1)/((P1+P2)/2)]. Using this formula, we get a price elasticity of demand of approximately 1.56, which is greater than 1. This means that demand is elastic in this price range, and a 4% increase in price leads to a greater than 4% decrease in quantity demanded.

Question 13

Which of the following expressions can be used to compute the price elasticity of demand?
A)Price elasticity of demand = 
• 
)
B)Price elasticity of demand = 
• 
)
C)Price elasticity of demand = 
• 
)
D)Price elasticity of demand = 
• 
)

Accepted Answer

The answer of Which of the following expressions can be...

Question 14

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about
A)0.55.
B)1.83.
C)2.
D)10.

Accepted Answer

Price elasticity of demand using midpoint method = ((Change in Quantity/ Average Quantity) / (Change in Price / Average Price))
=( (120-100)/((120+100)/2) ) / ((7-5)/((7+5)/2))
= (20/110) / (2/6)
= 0.1818 / 0.3333
= 0.5454 ~ 0.55
Therefore, the price elasticity of demand is approximately 0.55.

Question 15

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, we can calculate the percentage change in price and quantity using the following formula: 
Price Elasticity of Demand = (Percentage change in quantity demanded) / (Percentage change in price)

Substituting the given information: 
0.75 = (change in quantity demanded / -10%) / (change in price / ?)

Solving for the change in quantity demanded: 
Change in quantity demanded = -7.5%

Thus, a 10% decrease in quantity demanded can be achieved with a 13.33% increase in price (since -7.5% / 13.33% = -0.75). Therefore, the correct answer is B.

Question 16

Table 5-1 
-Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?
A)A is a luxury and B is a necessity.
B)A is a good after an increase in income and B is that same good after a decrease in income.
C)A has fewer substitutes than B.
D)A is a good immediately after a price increase and B is that same good 3 years after the price increase.

Accepted Answer

The answer of Table 5-1 
-Refer to Table 5-1. Which...

Question 17

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is
A)0.35.
B)0.43.
C)2.33.
D)2.89.

Accepted Answer

The answer of Suppose the price of a bag of...

Question 18

Which of the following expressions is valid for the price elasticity of demand?
A)Price elasticity of demand = 
)
B)Price elasticity of demand = 
)
C)Price elasticity of demand = 
)
D)Price elasticity of demand = 
)

Accepted Answer

The price elasticity of demand is a numerical value that measures the degree of responsiveness of quantity demanded to changes in price. It is usually represented by a negative number or a value between -1 and 0. Choice B) is the only option that falls within this range and also follows the format of a typical price elasticity of demand expression.

Question 19

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is
A)elastic, and her demand curve would be relatively flat.
B)elastic, and her demand curve would be relatively steep.
C)inelastic, and her demand curve would be relatively flat.
D)inelastic, and her demand curve would be relatively steep.

Accepted Answer

The answer of When the price of chai tea lattés...

Question 20

The midpoint method for calculating elasticities is convenient in that it allows us to
A)ignore the percentage change in quantity demanded and instead focus entirely on the percentage change in price.
B)calculate the same value for the elasticity, regardless of whether the price increases or decreases.
C)assume that sellers' total revenue stays constant when the price changes.
D)restrict all elasticity values to between 0 and 1.

Accepted Answer

The answer of The midpoint method for calculating elasticities is...

Quiz 5: Elasticity and Its Application

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

When the price of an eBook is $15.00, the quantity demanded is 400 eBooks per day. When the price falls to $10.00, the quantity demanded increases to 700. Given this information and using the midpoint method, we know that the demand for eBooks is

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?

When the price of a bracelet was $28 each, the jewelry shop sold 128 per month. When it raised the price to $32 each, it sold 112 per month. Using the midpoint method, the price elasticity of demand for bracelets is

The midpoint method is used to compute elasticity because it

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

Table 5-1 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

When the price of a good is $5, the quantity demanded is 100 units per month; when the price is $7, the quantity demanded is 80 units per month. Using the midpoint method, the price elasticity of demand is about

When the price of candy bars is $1.00, the quantity demanded is 500 per day. When the price falls to $0.80, the quantity demanded increases to 600. Given this information and using the midpoint method, we know that the demand for candy bars is

Suppose the price of a bag of tortilla chips decreases from $3.00 to $2.50 and, as a result, the quantity of tortilla chips demanded increases from 200 bags to 300 bags. Using the midpoint method, the price elasticity of demand for tortilla chips in the given price range is

Economists compute the price elasticity of demand as the

Suppose that 50 ice cream cones are demanded at a particular price. If the price of ice cream cones rises from that price by 4 percent, the number of ice cream cones demanded falls to 46. Using the midpoint approach to calculate the price elasticity of demand, it follows that the

Which of the following expressions can be used to compute the price elasticity of demand?

When the price of a good is $5, the quantity demanded is 120 units per month; when the price is $7, the quantity demanded is 100 units per month. Using the midpoint method, the price elasticity of demand is about

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?

Table 5-1 -Refer to Table 5-1. Which of the following is consistent with the elasticities given in Table 5-1?

Suppose the price of a bag of frozen chicken nuggets decreases from $6.50 to $5.75 and, as a result, the quantity of bags demanded increases from 600 to 800. Using the midpoint method, the price elasticity of demand for frozen chicken nuggets in the given price range is

Which of the following expressions is valid for the price elasticity of demand?

When the price of chai tea lattés is $5, Maxine buys 20 per month. When the price is $4, she buys 30 per month. Maxine's demand for chai tea lattés is

The midpoint method for calculating elasticities is convenient in that it allows us to