Price Elasticity of Demand and Determinants

Price elasticity of demand is a concept used to describe what concept in economics?

• how responsive output is to a change in government spending

• how responsive sellers are to a change in the price of a good

• the magnitude of the change in quantity due to a change in price

• whether quantity demanded increases or decreases when price increases

• the magnitude of the change in quantity due to a change in income

If the price elasticity of demand is unit elastic how does quantity demanded change in response to a 25% increase in price?

• Quantity demanded doesn’t change

• Quantity demanded decreases by 50%

• Quantity demanded increases by 50%

• Quantity demanded increases by 25%

• Quantity demanded decreases by 25%

If the price elasticity of demand for point 2 equals 1, what must also be true?

• Point 3 also has a price elasticity of demand equal to 1

• Point 1 is perfectly inelastic

• The value of price elasticity at point 1 is less than 1

• The value of price elasticity at point 3 is inelastic

• Point 3 is perfectly inelastic

When the price of spicy sauce was $10, people bought 100 jars. When the price increased to $12, people only bought 40 jars.

What is the price elasticity of demand for spicy sauce?

• 0.33

• 3

• 7.5

• 8.98

• -8.98

When the price of fuzzy blankets decreased by 10%, Mr. Fields bought 20% more fuzzy blankets.

What is Mr. Fields’ price elasticity of demand for blankets?

• Unit elastic

• Elastic

• Inelastic

• Perfectly Inelastic

• Perfectly Elastic

What statement about these points is true?

• All three points have the same value of elasticity since the slope of this curve is constant.

• The price elasticity of demand cannot be compared for these points without more information.

• Point 1 and 3 have elastic price elasticities, but point 2 is price inelastic.

• Point 1 has the highest price elasticity of the three points.

• Point 3 has the highest price elasticity.

Gas prices rose by 12% following a hurricane in the Gulf of Mexico. As a result, the amount of gas purchased in the week fell by 3% following the price increase.

What is the price elasticity of demand for gas in the week following the price increase?

• 0.5

• 4

• -0.75

• 0.25

• 2.5

Which of the demand curves shown in this graph is perfectly inelastic?

• D₁

• D₂

• D₃

• D₄

• D₅

Which of the demand curves shown in this graph is perfectly elastic?

• D₁

• D₂

• D₃

• D₄

• D₅

What is the price elasticity of demand for grapes when the price increases from $0.50 to $1.00?

• 0.2

• 1

• 5

• 2

• 0.25