elasticity

Question 1

The income effect of a price change refers to the impact of a change in:

Answer 1

the price of a good on a consumer’s purchasing power

Question 2

Price elasticity of demand measures:

Answer 2

how responsive quantity demanded is to a change in price.

Question 3

Suppose the value of the price elasticity of demand is –3. What does this mean?

Answer 3

A 1 per cent increase in the price of the good causes quantity demanded to decrease by 3 per cent.

Question 4

If the percentage increase in price is 15 per cent and the value of the price elasticity of demand is -3, then quantity demanded:

Answer 4

will decrease by 45 per cent.

Question 5

The price elasticity of demand for Stork ice cream is -4. Suppose you’re told that, following a price increase, quantity demanded fell by 10 per cent. What was the percentage change in price that brought about this change in quantity demanded?

Answer 5

0.4 per cent.

Question 6

If demand is inelastic, the absolute value of the price elasticity of demand is:

Answer 6

less than one.

Question 7

A demand curve that is ________ represents perfectly inelastic demand and a demand curve that is ________ represents inelastic demand.

Answer 7

vertical; downward sloping

Question 8

If demand is perfectly inelastic, the absolute value of the price elasticity of demand is:

Answer 8

zero

Question 9

The price elasticity of demand for beef is estimated to be 0.60 (in absolute value). This means that a 20 per cent increase in the price of beef, holding everything else constant, will cause the quantity of beef demanded to:

Answer 9

decrease by 12 per cent.

Question 10

If the absolute value of the price elasticity of demand for aspirin equals 0.8, then:

Answer 10

the demand for aspirin is inelastic.