BE Quiz
BE Quiz
Quiz
Elasticity of
Demand & Supply
1. More “elastic” means:
a. less desirable
b.more responsive
c. less responsive
d. more desirable
2. Price elasticity of demand is calculated as
a. the percentage change in quantity
demanded divided by the percentage
change in price
b. the percentage change in price divided by
the percentage change in quantity
demanded
c. the absolute change in quantity demanded
divided by the absolute change in price
• A. A percent change is measured by the
difference between the two numbers
divided by the original number. For
example, what is the percent increase
from 3 to 5 units? 2 divided by 3. What is
the percent decrease from 5 to 3? 2
divided by 5.
3. Without making an adjustment such as
finding the absolute values of the percentage
changes, the price elasticity of demand would
be negative because
a. -1/2 = -0.5
b. -2/3 = -0.667
c. -1.0
Answer
A. The difference between 9 and 11 units is
2 and the average quantity is 10. The
difference between $3 and $2 is 1 and the
average price is 2.5.
2/10 / 1/2.5 = 2/10 x 2.5/1 = 5/10 = 1/2
= .5.
* most authors drop the negative sign,
McEachern does not in his book.
6. Matt bought 6 CDs last month, when the
price was $14. This month, when the price of
CDs increased to $16, Matt bought only 4
CDs. Matt’s price elasticity of demand is
a. -1/3 = -0.333
b. -3/7 = -0.429
c. -7/3 = -2.333
d. -3
Answer
D. The difference between the quantities
demanded is 2 and the average quantity
is 5. The difference between the prices is
2 and the average price is 15. So:
2/5 divided by 2/15 = 2/5 x 15/2 = 30/10 = 3
* Again, McEachern uses the negative sign.
7. If a 5% increase in price leads to an 8%
decrease in quantity demanded, demand is
a. perfectly elastic
b. elastic
c. unit elastic
d. inelastic
Answer
• B. When price increases and a sellers
total revenue increases, the demand is
inelastic. When the price increases and
the sellers total revenue decreases, the
demand is elastic. In this case total
revenue will decrease because the
quantity demanded is decreasing at a
greater percentage than the increase in
price.
8. Unit elastic demand occurs when
a. a one-unit increase in price leads to a one-
unit decrease in quantity demanded
b. a 1% increase in price leads to a one-unit
decrease in quantity demanded
c.price elasticity of demand is exactly -1
d. price elasticity of demand is positive
Answer
• D. The price elasticity of demand is
unitary elastic when the percent change
in quantity demanded divided by the
percent change in price is equal to one.
9. In calculating price elasticity of demand,
which of the following is assumed to be held
constant?
a. the price of the product itself
b. the quantity demanded of the product
c. total revenue received from the sale of the
product
d. the prices of all other products
• D. Anytime we change something and
want to know the result we always
assume that everything else stays the
same. The Latin term for this assumption
is ceteris paribus.
10. John spends exactly the same dollar amount
of candy bars each week, regardless of their
price. John’s demand curve for candy bars is
a. upward-sloping
b. backward-bending
c. perfectly inelastic
d. unit elastic
• C. A perfectly inelastic demand curve is
perfectly vertical. This means that a
change in price has no effect on the
quantity demanded.
11. Along a linear, downward-sloping demand
curve, price elasticity of demand
a. is impossible to calculate
Quantity
Exhibit 18.1
51. The price elasticity of demand in
Exhibit 18-1 is
a. unit elastic
b. somewhat elastic
c. perfectly elastic
d. perfectly inelastic
D. It is perfectly inelastic because a
change in price will have no effect
on the quantity demanded.
52. What is the price elasticity of demand in
Exhibit 18-1 ?
a. 0
b. -1
c. negative infinity
d. 1
A. The price elasticity of demand is the
percent change in quantity divided by the
percent change in price. In this case there
is 0 change in the quantity demanded as
the price changes.
Price Last slide viewed
De
$40 ma
nd
$20
0
6 8 Quantity
Exhibit 18.2
53. What is the price elasticity of demand
between $20 and $40 in Exhibit 18-2?
a. -1
b. -3/7
c. -2 1/3
d. -7
B. The percent change in quantity is 2/7 and
the percent change in price is 20/30 so the
price elasticity of demand is 2/7 x 30/20 =
60/140 = 6/14 = 3/7. *Remember, your author
uses the negative sign when referring to
elasticity of demand.
54. What is the price elasticity of demand in the
segment of the demand curve below $40 and
above $20 in Exhibit 18-2?
a. elastic
b. inelastic
c. unit elastic
d. 0
Exhibit 18.3
56. What is the price elasticity of supply
between $10 and $20 on supply curve S in
Exhibit 18-3?
a. 0
b. infinity
c. 1
d. 2
C. Price elasticity of supply is the percent
change quantity divided by the percent
change in price. The percent change in
quantity is 100/150 and the percent change in
price is 10/15. So price elasticity of supply is
100/150 x 15/10 = 1500/1500 = 1
57. What is the price elasticity of supply
between $20 and $40 on supply curve S1 in
Exhibit 18-3?
a. 0
b. infinity
c. 1
d. 2