Chapter 4 Elasticity: A Measure of Responsiveness

4.1 The Price Elasticity of Demand

1) The price elasticity of demand reflects the responsiveness of

A) firms to changes in demand.

B) demand to a change in price of a substitute good.

C) demand to a change in price.

D) quantity demanded to a change in price.

2) Suppose that Victoria and her friends are running a fundraiser by selling donuts. They want to know what will happen to their revenue if they increase the price of each donut from $0.80 to $1. What concept do they need to apply to find out their expected revenue?

A) price elasticity of supply

B) price elasticity of demand

C) cross elasticity of demand

D) income elasticity of demand

3) A good synonym for elasticity would be

A) change.

B) demand.

C) responsiveness.

D) stickiness.

4) The price elasticity of demand is calculated by

A) the change in price divided by the change in quantity demanded.

B) the change in quantity demanded divided by the change in price.

C) the percentage change in price divided by the percentage change in quantity demanded.

D) the percentage change in quantity demanded divided by the percentage change in price.

5) The ratio of the percentage change in quantity demanded to the percentage change in price is known as the

A) demand-side shift factor.

B) income elasticity of demand.

C) price elasticity of demand.

D) cross elasticity of demand.

6) If the price elasticity of demand is 0.5, this means that a ________ increase in price causes a ________ decrease in quantity demanded.

A) 20%; 100%

B) 30%; 15%

C) 20%; 1%

D) 5%; 1%

7) If the price elasticity of demand is 2, this means that a ________ increase in price causes a ________ decrease in quantity demanded.

A) 15%; 100%

B) 15%; 10%

C) 20%; 40%

D) 30%; 20%

8) The price of apples increases from $1 to $1.10. At the same time, the quantity of apples demanded decreases from 100 to 90. The price elasticity of demand for apples (calculated using the initial value formula) is

A) 0.02.

B) 0.9.

C) 1.

D) 1.1.

9) Suppose that in a month the price of milk increases from $2 to $3 a gallon. At the same time, the quantity of gallons of milk demanded decreases from 200 to 190. The price elasticity of demand for milk (calculated using the initial value formula) is

A) 0.1.

B) 0.2.

C) 1.

D) 10.

10) Suppose that in a month the price of a dozen of eggs increases from $1.50 to $2. At the same time, the quantity of dozens of eggs demanded decreases from 200 to 150. The price elasticity of demand for dozens of eggs is

A) perfectly inelastic.

B) inelastic.

C) unitary elastic.

D) elastic.