Question 1

The price of product X increases from $35 to $40, and as a result, the quantity demanded decreases from 250 to 200. Over this price range,
A) demand is elastic.
B) demand is inelastic.
C) demand is of unitary elasticity.
D) there is insufficient information to determine the price elasticity of demand.

Accepted Answer

The price increase led to a proportionally larger decrease in quantity demanded, indicating a relatively high responsiveness of demand to price changes. This is characteristic of elastic demand.

Question 2

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is
A) elastic.
B) inelastic.
C) of unitary elasticity.
D) indeterminate.

Accepted Answer

The decrease in attendance by 15% shows a significant change in quantity demanded in response to the price increase of 10%, indicating that the demand is elastic. Inelastic demand would result in a negligible change in quantity demanded in response to a change in price.

Question 3

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a
A) 4.5 percent decrease in quantity demanded.
B) 4.5 percent increase in quantity demanded.
C) 45 percent decrease in quantity demanded.
D) 45 percent increase in quantity demanded.
E) 450 percent increase in quantity demanded

Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. If the price elasticity of demand for football tickets is 4.5, a 10 percent increase in price would result in a 4.5 times larger percentage decrease in quantity demanded, or 45 percent. Therefore, the correct answer is C.

Question 4

If a demand curve for a good were completely vertical, it would be considered
A) perfectly elastic.
B) perfectly inelastic.
C) of unitary elasticity.
D) relatively inelastic.

Accepted Answer

A completely vertical demand curve would indicate that the quantity demanded is completely unresponsive to changes in price, meaning that no matter how much the price changes, the quantity demanded remains the same. This is the definition of perfectly inelastic demand.

Question 5

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is
A) 2.5.
B) 0.4.
C) 0.5.
D) 5.
E) inelastic.

Accepted Answer

The answer of Suppose the Pleasant Corporation cuts the price...

Question 6

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as
A) unstable.
B) relatively inelastic.
C) relatively elastic.
D) of unitary elasticity.

Accepted Answer

The percentage change in quantity demanded is greater than the percentage change in price, indicating that demand is relatively responsive to price changes and therefore relatively elastic.

Question 7

If the quantity demanded of a product fell from 11,000 to 10,000 when price rose from $9 to $10, the price elasticity of demand over this range is equal to approximately
A) − 0.1.
B) − 0.05.
C) − 0.9.
D) − 1.1.

Accepted Answer

To calculate price elasticity of demand, we use the following formula:

Price Elasticity of Demand = ((Q2-Q1) / ((Q2+Q1)/2)) / ((P2-P1) / ((P2+P1)/2))

Using the given values:

Q1 = 11000
Q2 = 10000
P1 = 9
P2 = 10

Price Elasticity of Demand = ((10000-11000) / ((10000+11000)/2)) / ((10-9) / ((10+9)/2))
Price Elasticity of Demand = (-1000 / 10500) / (1 / 9.5)
Price Elasticity of Demand = (-0.0952...) / 0.1053...
Price Elasticity of Demand ≈ -0.9

Therefore, the correct answer is C.

Question 8

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is − .25, by how much would you have to raise the price of water?
A) 10 percent
B) 25 percent
C) 40 percent
D) 100 percent

Accepted Answer

The answer of Suppose you are the manager of a...

Question 9

As people have more time to adjust to a price change,
A) demand becomes more elastic, and supply becomes less elastic.
B) demand becomes less elastic, and supply becomes more elastic.
C) both supply and demand become less elastic.
D) both supply and demand become more elastic.
E) elasticity of both demand and supply tends toward unity.

Accepted Answer

The answer of As people have more time to adjust...

Question 10

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is
A) 0.40.
B) 0.80.
C) 1.25.
D) 2.50.
E) 4.

Accepted Answer

Price Elasticity of Demand (PED) = % change in quantity demanded / % change in price

Here, we know that the price decreased from $2.20 to $1.80, or by 18.18%. The quantity demanded increased from 350 to 450, or by 28.57%. Therefore:

PED = 28.57% / 18.18%
PED = 1.57

Since we only want the absolute value, the answer is rounded to 1.6, or approximately 1.6.

Therefore, the absolute value of the price elasticity of demand for Starbucks coffee is approximately 1.25 (option C).

Question 11

If demand price elasticity measures 2, this implies that consumers would
A) buy twice as much of the product if the price drops 10 percent.
B) require a 2 percent drop in price to increase their purchases by 1 percent.
C) buy 2 percent more of the product in response to a 1 percent drop in price.
D) require at least a $2 increase in price before showing any response to the price increase.
E) buy twice as much of the product if the price drops 1 percent.

Accepted Answer

A demand price elasticity of 2 means that a 1% drop in price leads to a 2% increase in quantity demanded. Therefore, consumers would buy 2% more of the product in response to a 1% drop in price.

Question 12

If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased, the price elasticity of demand for the tickets is
A) − 0.20.
B) − 0.40.
C) − 0.50.
D) − 2.50.

Accepted Answer

We can use the price elasticity of demand formula to calculate the answer:

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

We are given that the price of airline tickets decreased by 20%, which means the % change in price is -20%. We are also given that the quantity of tickets purchased increased by 50%, which means the % change in quantity demanded is 50%.

Plugging these values into the formula, we get:

Price Elasticity of Demand = 50% / -20%
Price Elasticity of Demand = -2.5

Therefore, the price elasticity of demand for the tickets is -2.5.

Question 13

A local Krispy Kreme doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was
A) elastic.
B) inelastic.
C) of unitary elasticity.
D) indeterminate; more information is needed to determine the price elasticity of demand.

Accepted Answer

The decrease in price resulted in a relatively large increase in quantity demanded (from 300 to 400 dozen), indicating that the demand for Krispy Kreme doughnuts is price elastic.

Question 14

If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent, and the quantity sold declines by 8 percent as a result, the price elasticity of demand for cigarettes is equal to
A) − 0.2.
B) − 0.4.
C) − 0.8.
D) − 5.

Accepted Answer

The answer of If an increase in the excise tax...

Question 15

When the price of designer jeans goes from $85 to $60, the quantity demanded increases from 100,000 to 120,000. Over this price range, the
A) demand for the jeans is elastic.
B) demand for the jeans is inelastic.
C) demand for the jeans is of unitary elasticity.
D) arc elasticity of demand for the jeans is − 4.

Accepted Answer

The answer of When the price of designer jeans goes...

Question 16

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is
A) 0.55.
B) 1.
C) 1.25.
D) 1.80.
E) 2.50.

Accepted Answer

The answer of When the price of Nike tennis shoes...

Question 17

If the quantity of oranges purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the price elasticity of demand for oranges is
A) − 0.25.
B) − 0.50.
C) − 1.25.
D) − 2.

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, we know that the percentage change in quantity demanded is -30% and the percentage change in price is +15%. Therefore, the price elasticity of demand can be calculated as:

E = -30% / (+15%) = -2

Since the elasticity is greater than 1, demand for oranges is considered to be elastic. A 15% increase in price led to a 30% decrease in quantity demanded, which indicates that consumers are highly responsive to changes in price.

Question 18

A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent. Over this range, the absolute value of the price elasticity of demand was
A) 0.4.
B) 1.
C) 2.
D) 2.5

Accepted Answer

The answer of A local Krispy Kreme doughnut shop reduced...

Question 19

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:
A) product A is more price elastic than product B.
B) product B is more price elastic than product A.
C) consumers are more sensitive to price changes in product A than in product B.
D) product B is more price inelastic than product A.
E) products A and B must be substitutes.

Accepted Answer

Product B, with an elasticity greater than 1, is more price elastic, meaning consumers are more responsive to price changes compared to product A, which has an elasticity less than 1.

Question 20

A recent increase in the supply of oranges caused the price to drop from $5 to $3 per bushel, and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is
A) − 0.33.
B) − 0.58.
C) − 1.
D) − 1.71.

Accepted Answer

The price elasticity of demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). The percentage change in quantity demanded is ((25,000 - 10,000) / 10,000) * 100 = 150%. The percentage change in price is ((3 - 5) / 5) * 100 = -40%. Therefore, the elasticity is 150% / -40% = -1.71.

Quiz 7: Consumer Choice and Elasticity

The price of product X increases from $35 to $40, and as a result, the quantity demanded decreases from 250 to 200. Over this price range,

If the price of tickets to Disney World increases 10 percent, and as a result, attendance falls by 15 percent, the demand for the tickets is

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a

If a demand curve for a good were completely vertical, it would be considered

Suppose the Pleasant Corporation cuts the price of its American Girl dolls by 10 percent, and as a result, the quantity of the dolls sold increases by 25 percent. This indicates that the price elasticity of demand for the dolls over this range is

If the quantity demanded increases by 20 percent in response to a 10 percent decrease in price, demand is classified as

If the quantity demanded of a product fell from 11,000 to 10,000 when price rose from $9 to $10, the price elasticity of demand over this range is equal to approximately

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is − .25, by how much would you have to raise the price of water?

As people have more time to adjust to a price change,

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the absolute value of the price elasticity of demand for Starbucks coffee is

If demand price elasticity measures 2, this implies that consumers would

If a 20 percent reduction in the price of airline tickets between Chicago and New York leads to a 50 percent increase in the quantity of tickets purchased, the price elasticity of demand for the tickets is

A local Krispy Kreme doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was

If an increase in the excise tax imposed on cigarettes pushes the price per pack up by 20 percent, and the quantity sold declines by 8 percent as a result, the price elasticity of demand for cigarettes is equal to

When the price of designer jeans goes from $85 to $60, the quantity demanded increases from 100,000 to 120,000. Over this price range, the

When the price of Nike tennis shoes goes from $100 to $80, the quantity demanded increases from 20 to 30 million. Over this price range, the absolute value of the price elasticity of demand is

If the quantity of oranges purchased decreases by 30 percent as the result of a 15 percent increase in the price of oranges, the price elasticity of demand for oranges is

A local Krispy Kreme doughnut shop reduced its prices by 10 percent, and as a result, the quantity of doughnuts sold increased by 25 percent. Over this range, the absolute value of the price elasticity of demand was

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

A recent increase in the supply of oranges caused the price to drop from $5 to $3 per bushel, and quantity demanded to rise from 10,000 bushels to 25,000 bushels. This indicates that the price elasticity of demand for oranges in this price range is