Question 1

Some Asian medicines have become very expensive as the wildlife used for ingredients has become endangered. The persistence of demand by some consumers for these medicines indicates that these customers have inelastic demand.

Accepted Answer

Inelastic demand means that changes in price do not significantly affect the quantity demanded. The statement suggests that despite the increase in price due to the scarcity of the ingredients, some customers still continue to demand the medicines. This indicates that their demand is inelastic, as they are not very responsive to changes in price.

Question 2

Necessities tend to have price inelastic demands, whereas luxuries have price elastic demands.

Accepted Answer

This statement is true. Necessities, such as food and healthcare, have inelastic demands because they are essential for survival and consumers will continue to purchase them regardless of price changes. On the other hand, luxuries, such as expensive cars or vacations, have elastic demands because consumers can easily reduce their demand for these items if the price goes up.

Question 3

A demand curve that is horizontal is perfectly elastic and the elasticity is equal to one.

Accepted Answer

A horizontal demand curve is perfectly elastic, but the elasticity is infinite, not equal to one.

Question 4

A perfectly vertical demand curve means that demand is perfectly inelastic. The price elasticity of demand will be zero.

Accepted Answer

A perfectly vertical demand curve indicates that a change in price will have no effect on the quantity demanded. This means that the price elasticity of demand will be zero, indicating perfectly inelastic demand.

Question 5

A good experiences a shift of the demand curve so that it is now flatter than before. Suppose that the market price and quantity demanded does not change. This means that the good has now become inelastic.

Accepted Answer

If the demand curve becomes flatter, it means that the good has become more elastic, not inelastic. A shift towards a flatter demand curve means that consumers are more sensitive to price changes, and as a result, a small change in price will lead to a relatively larger change in quantity demanded. Therefore, the good is now more elastic than before.

Question 6

Suppose there is a change in the price of electricity. The demand for electricity will respond to this change less over the next month than over the next two years.

Accepted Answer

The demand for electricity is generally inelastic in the short term because consumers and businesses cannot quickly change their consumption habits or switch to alternatives. Over a longer period, they can adjust their usage or invest in energy-efficient technologies, making demand more elastic.

Question 7

The price elasticity of demand for a product will tend to be higher if fewer good substitutes for it are available.

Accepted Answer

The price elasticity of demand for a product tends to be lower if fewer good substitutes are available, as consumers have fewer alternatives and are less sensitive to price changes.

Question 8

Goods tend to have more elastic demand over shorter time horizons.

Accepted Answer

Goods tend to have more elastic demand over longer time horizons because consumers have more time to adjust their behavior and find substitutes.

Question 9

A linear demand curve always has the same elasticity over its entire length.

Accepted Answer

The elasticity of a linear demand curve varies along its length. At the top, where the curve is relatively flat, demand is elastic, meaning that small changes in price will result in larger changes in quantity demanded. At the bottom of the curve, where it is relatively steep, demand is inelastic, meaning that changes in price will have minimal impact on quantity demanded.

Question 10

Goods with close substitutes tend to have more elastic demands than do goods without close substitutes.

Accepted Answer

This is one of the determinants of price elasticity of demand, as consumers have more options to switch to if the price of a good with close substitutes increases, making them more sensitive to price changes.

Question 11

The percentage change in the price of a good, divided by the percentage change in the quantity demanded, will generate the price elasticity of demand for that good.

Accepted Answer

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price, not the other way around.

Question 12

If the measured elasticity is less than one it means that the demand for this good is inelastic.

Accepted Answer

If the measured elasticity is less than one, it indicates that the percentage change in quantity demanded is less than the percentage change in price, meaning the demand is inelastic.

Question 13

The price of a hamburger increases by 25 per cent and the quantity of hamburgers demanded per week falls by 50 per cent. The price elasticity of demand is two.

Accepted Answer

The price elasticity of demand is calculated by the percentage change in quantity demanded divided by the percentage change in price. In this case, the price has increased by 25% and the quantity demanded has decreased by 50%. The percentage change in quantity demanded is -50%/100% = -0.5 and the percentage change in price is 25%/100% = 0.25. Therefore, the price elasticity of demand is -0.5/0.25 = -2. Since the problem states that the price elasticity of demand is two, this is true.

Question 14

Narrowly defined markets tend to have more elastic demands than do broadly defined markets.

Accepted Answer

This is because in narrowly defined markets, consumers have more specific needs and preferences, and there may be more substitutes available. As a result, they are more likely to be sensitive to changes in price and may be more willing to switch to a competitor if the price increases.

Question 15

The demand for a good is said to be elastic if a small price decrease leads to a substantial increase in the quantity demanded.

Accepted Answer

Elastic demand means that the quantity demanded changes significantly in response to a small price change. This is because consumers are more sensitive to price changes and will buy more of the good when the price drops.

Question 16

If the price elasticity of demand is equal to zero, demand is unit elastic.

Accepted Answer

If the price elasticity of demand is equal to zero, demand is considered perfectly inelastic, meaning that changes in price have no effect on the quantity demanded. Unit elasticity occurs when a percentage change in price results in an equal percentage change in quantity demanded, which is represented by an elasticity of 1.

Question 17

The concept of the slope is the best way to measure the responsiveness of demand to changes in its determinants.

Accepted Answer

The concept of elasticity, not slope, is the best way to measure the responsiveness of demand to changes in its determinants, as it provides a unit-free measure allowing for comparison across different goods and services.

Question 18

Demand is elastic if the elasticity is greater than one.

Accepted Answer

If the elasticity of demand is greater than one, it means that a small change in price will lead to a relatively larger change in the quantity demanded, indicating that demand is elastic.

Question 19

The demand for a good is inelastic if the quantity demanded decreases substantially after a small increase in the price

Accepted Answer

The demand for a good is inelastic if the quantity demanded changes only slightly in response to a change in price. In other words, even if the price increases, the quantity demanded does not decrease substantially. Therefore, option A is incorrect.

Question 20

The demand for fruit is generally more elastic than the demand for Australian apples

Accepted Answer

The answer of The demand for fruit is generally more...

Quiz 5: Elasticity and Its Application