Question 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
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 2

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 3

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 answer of Which of the following expressions is valid...

Question 4

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 definition of price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. Therefore, the correct answer is C.

Question 5

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 answer of Suppose that 50 ice cream cones are...

Question 6

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

The midpoint method formula for price elasticity of demand is:
Price Elasticity of Demand = (Q2 - Q1) / [(Q2 + Q1)/2]  /  (P2 - P1) / [(P2 + P1)/2]

If the price elasticity of demand is 2, it means that a 1% increase in price leads to a 2% decrease in quantity demanded.
So a 0.1% increase in price would lead to a 0.2% decrease in quantity demanded.

Using the midpoint method formula, we can calculate the approximate new quantity demanded:
2 = (Q2 - Q1) / [(Q2 + Q1)/2]  /  0.001 / [(P2 + P1)/2]
Solving for Q2-Q1, we get:
Q2 - Q1 = 0.0025(Q2 + Q1)
Q2 - Q1 = 0.0025Q2 + 0.0025Q1
0.9975Q1 = 0.9975Q2
Q2 = 1.0025Q1

So if the original quantity demanded was 100, the new quantity demanded would be:
Q2 = 1.0025(100) = 100.25

If the original quantity demanded was 200, the new quantity demanded would be:
Q2 = 1.0025(200) = 200.5

The only answer choice that has a decrease in quantity demanded of approximately 0.2% is D, where the quantity demanded decreases by 0.2%.

Question 7

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 8

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:

% change in price = (2.50-3.00)/((2.50+3.00)/2) * 100% = -16.67%
% change in quantity demanded = (300-200)/((300+200)/2) * 100% = 25%

Therefore, price elasticity of demand = % change in quantity demanded / % change in price = 25% / 16.67% = 1.5

Since this value is greater than 1, we know that the demand for tortilla chips is elastic in this price range. Thus, a 1% decrease in price leads to a greater than 1% increase in quantity demanded. The answer choice closest to 1.5 is C.

Question 9

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 10

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 pens and B is pencils.
B)A is a Snickers bar and B is a Milky Way bar.
C)A is an airline ticket from Chicago to New York demanded by a vacationer and B is an airline ticket from Chicago to New York demanded by a business traveler.
D)A is a bottle of water demanded by a tourist in a desert and B is a bottle of water demanded by a tourist in a rain forest.

Accepted Answer

Elasticity of demand for airline tickets varies depending on the purpose of the trip. Vacationers tend to have more elastic demand than business travelers because they have more flexibility in their travel plans. Therefore, option C is consistent with the elasticities given in the table. The other options do not have any clear indication of which product has a more elastic demand than the other.

Question 11

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

Since there are no good substitutes for automotive tires, the demand for them would tend to be inelastic. This means that changes in price would have little effect on the quantity demanded, and the demand would be relatively unresponsive to changes in income as well.

Question 12

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

Let's assume that the initial price is $10 and the initial quantity demanded is Q1.
If the price decreases by 10%, the new price (P2) would be $9.
We need to find the new quantity demanded (Q2) that corresponds to the 10% decrease in quantity demanded.

Using the formula of price elasticity of demand, we can rearrange it to solve for Q2:
(Q2 - Q1) / ((Q2 + Q1)/2) = 0.75 * (P2 - P1) / ((P2 + P1)/2)
(Q2 - Q1) / ((Q2 + Q1)/2) = 0.75 * (9 - 10) / ((9 + 10)/2)
(Q2 - Q1) / ((Q2 + Q1)/2) = -0.0588
Q2 - Q1 = -0.0588 * ((Q2 + Q1)/2)
Q2 - Q1 = -0.0294 * (Q2 + Q1)
Q2 - Q2 * 0.0294 = Q1 + Q1 * 0.0294
Q2 * (1 - 0.0294) = Q1 * (1 + 0.0294)
Q2 = Q1 * (1 + 0.0294) / (1 - 0.0294)
Q2 = Q1 * 1.0303

Therefore, a 10% decrease in the quantity of the good demanded would correspond to a 3.03% increase in price.
A) is incorrect because a 7.5% increase in price would lead to a 5.625% decrease in quantity demanded, which is not consistent with a 10% decrease.
C) is incorrect because the absolute change in price is $2.50, which is not a 10% decrease from the initial price.
D) is incorrect because the absolute change in price is $7.50, which is a 75% increase, not a 10% decrease.

Question 13

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 14

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

Price elasticity of demand using the midpoint formula is:

[(Q2-Q1)/((Q1+Q2)/2)]/[(P2-P1)/((P1+P2)/2)]

Where:
P1 = initial price = $6.50
P2 = new price = $5.75
Q1 = initial quantity demanded = 600
Q2 = new quantity demanded = 800

Applying the values, we get:

[(800-600)/((600+800)/2)]/[(5.75-6.50)/((6.50+5.75)/2)]
= [200/700]/[-0.75/6.125]
= 1.714/(1/8.167)
= 2.33

Therefore, the price elasticity of demand for frozen chicken nuggets in the given price range is 2.33 which means that the demand for frozen chicken nuggets is relatively elastic.

Question 15

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...

Question 16

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

The answer of When the price of a good is...

Question 17

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 18

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 19

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

The midpoint method formula for calculating price elasticity of demand is:

% change in quantity demanded = (new quantity demanded - old quantity demanded) / ((new quantity demanded + old quantity demanded)/2) x 100%

% change in price = (new price - old price) / ((new price + old price)/2) x 100%

Using the numbers given in the question, we get:

% change in quantity demanded = (700 - 400) / ((700 + 400)/2) x 100% = 60%

% change in price = (10 - 15) / ((10 + 15)/2) x 100% = -25%

Price elasticity of demand = % change in quantity demanded / % change in price = -60% / -25% = 2.4

Since the price elasticity of demand is greater than 1, demand for eBooks is elastic.

Question 20

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

A has a higher income elasticity than B, indicating that it is a luxury good, while B is a necessity.

Quiz 5: Elasticity and Its Application

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

The midpoint method is used to compute elasticity because it

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

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

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

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

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

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

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

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 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

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

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

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

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

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 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

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