Quiz on Price Elasticity of Demand

If the price elasticity of demand for a good is 4, then a 10 percent increase in price results in a

• 10 percent decrease in quantity demanded

• 10 percent increase in quantity demanded

• 40 percent decrease in quantity demanded

• 40 percent increase in quantity demanded

The difference between slope and elasticity is that slope

• is a ratio of two changes, and elasticity is a ratio of two percentage changes

• is an average, and elasticity is a ratio of two changes

• is a ratio of two changes, and elasticity is an average

• is a ratio of two percent changes, and elasticity is a ratio of two changes

When the price of bubble gum is $0.50, the quantity demanded is 400 packs per day. When the price falls to $0.40, the quantity demanded increases to 600. Given this information, we know that the demand for bubble gum is

• elastic

• Unit elastic

• Inelastic

• Perfectly elastic

Last year, Shelly bought 6 pairs of designer jeans when her income was $40,000. This year, her income is $50,000, and she purchased 10 pairs of designer jeans. Holding other factors constant, it follows that Shelly

• Considers designer jeans to be a normal good

• Considers designer jeans to be an inferior good

• Considers designer jeans to be a substitute

• Considers designer jeans to be a complement

Sandra purchases 5 pounds of coffee and 10 gallons of milk per month when the price of coffee is $10 per pound. She purchases 6 pounds of coffee and 12 gallons of milk per month when the price of coffee is $8 per pound. Sandra’s cross-price elasticity of demand for milk and coffee is

• -0.5, and they are complements

• 1.5, and they are substitutes

• -0.82, and they are complements

• -1, and they are complements

A key determinant of the price elasticity of supply is

• time horizon

• Fraction of income spent on item

• Available substitutes

• Number of buyers

If the price elasticity of supply is 1.5, and a price increase led to a 1.8% increase in quantity supplied, then the price increase is about

• 1.7%

• 1.2%

• 0.7%

• 0.2%

In a competitive market free of government regulation, the law of market forces tells us

• There will be a surplus

• There will be a shortage

• Price adjusts until quantity demanded equals quantity supplied

• In the event of a shortage demand shifts left until we are in equilibrium

In markets, prices move toward equilibrium because of

• The actions of buyers and sellers

• Government regulations placed on market participants

• Increased competition among sellers

• Buyers’ ability to affect market outcomes

Which of the following events will cause equilibrium quantity to fall?

• Demand increases and supply decreases

• Demand and supply both decrease

• Demand and supply both increase

• Demand decreases and supply increases