Question 1

What will make a change in demand cause a large change in price?

Accepted Answer

The answer of What will make a change in demand...

Question 2

If the demand for a product decreases by 16 percent and the supply elasticity is 1.2 and demand elasticity is 0.80. Then the equilibrium price will decrease by 6 percent.

Accepted Answer

The change in equilibrium price due to changes in demand and supply depends on both the demand and supply elasticities, not just the percentage change in demand. The given elasticities and demand change alone do not provide enough information to accurately calculate the exact percentage change in equilibrium price without considering the initial conditions and how supply reacts.

Question 3

If demand increases, the increase in price will be smaller if demand and supply are highly inelastic.

Accepted Answer

If demand and supply are highly inelastic, a small increase in demand can lead to a significant increase in price because neither consumers nor producers are willing to change their quantity demanded or supplied much in response to price changes.

Question 4

Suppose that the percentage change in supply is 20%, the price elasticity of demand is 3, and the percentage change in the equilibrium price is 4%. What is the price elasticity of supply?
A) 0
B) 2
C) 4
D) 5

Accepted Answer

The formula for calculating the price elasticity of supply is:
Price Elasticity of Supply = (% change in quantity supplied) / (% change in price)

We are given that the percentage change in supply is 20%, and the percentage change in the equilibrium price is 4%. We can use this information to calculate the percentage change in quantity supplied:

% change in quantity supplied = (% change in supply) + (price elasticity of demand) x (% change in price)
% change in quantity supplied = 20% + 3 x 4% = 32%

Therefore, the price elasticity of supply is:

Price Elasticity of Supply = (% change in quantity supplied) / (% change in price)
Price Elasticity of Supply = 32% / 4% = 8

Since the answer choices are not in decimal form, we need to divide our calculated elasticity by 4 to match the answer choices. This gives us:

Price Elasticity of Supply = 8 / 4 = 2

Therefore, the answer is B.

Question 5

If supply decreases, the increase in price will be smaller if demand and supply are highly elastic.

Accepted Answer

When both demand and supply are highly elastic, it means that a small change in either variable will result in a larger change in the other variable. Therefore, if supply decreases, the resulting increase in price will be smaller because consumers are more likely to respond by seeking alternative products or suppliers. In other words, the decrease in supply will not have a significant impact on the equilibrium price if both demand and supply are highly elastic.

Question 6

Recall the Application about how changes in supply affect the price of gasoline to answer the following question(s).
-Recall the Application. Suppose the price elasticity of demand for gasoline is 0.20 and the price elasticity of supply for gasoline is 0.55. If supply increases by 20 percent, the equilibrium price will decrease by
A) 27 percent.
B) 57 percent.
C) 175 percent.
D) 375 percent.

Accepted Answer

The percentage change in price is calculated using the formula (% change in quantity demanded / % change in supply) * (1 / price elasticity of demand). Plugging in the numbers given, we get (% change in price / 20) = (0.20/0.55) * (1 / price elasticity of demand), which simplifies to % change in price = -27.27%. Therefore, the equilibrium price will decrease by 27 percent. Choice A is the correct answer.

Question 7

Recall the Application about how changes in supply affect the price of gasoline to answer the following question(s).
-Recall the Application. Suppose the price elasticity of demand for gasoline is 0.20 and the price elasticity of supply for gasoline is 0.55. If supply decreases by 50 percent, the equilibrium price will increase by
A) 67 percent.
B) 70 percent.
C) 143 percent.
D) 150 percent.

Accepted Answer

The percentage change in price can be calculated using the formula: %ΔPrice = (%ΔQuantity / (Elasticity of demand + Elasticity of supply)). Here, %ΔQuantity is -50% (since supply decreases by 50%), Elasticity of demand is 0.20, and Elasticity of supply is 0.55. Plugging these values in gives %ΔPrice = (-50% / (0.20 + 0.55)) = -50% / 0.75 = -66.67%, which means the price increases by approximately 67%.

Quiz 4: Elasticity: A Measure of Responsiveness

What will make a change in demand cause a large change in price?

If the demand for a product decreases by 16 percent and the supply elasticity is 1.2 and demand elasticity is 0.80. Then the equilibrium price will decrease by 6 percent.

If demand increases, the increase in price will be smaller if demand and supply are highly inelastic.

Suppose that the percentage change in supply is 20%, the price elasticity of demand is 3, and the percentage change in the equilibrium price is 4%. What is the price elasticity of supply?

If supply decreases, the increase in price will be smaller if demand and supply are highly elastic.