Microeconomics Quiz: Elasticity & Its Application

If the income elasticity of demand for a bus ride is negative, it means that as income increases, the demand for bus rides decreases. This suggests that bus rides are considered inferior goods, which are goods that people consume less of as their income increases. In other words, as people become wealthier, they are more likely to opt for alternative modes of transportation instead of relying on bus rides. Therefore, the given statement that a bus ride is an inferior good is true.

A steeper supply curve indicates that the quantity supplied does not respond significantly to changes in price. This suggests that the supply is less responsive to price changes and therefore, price inelastic. In other words, even if there is a change in price, the quantity supplied will not change significantly.

Insulin is a necessity for individuals with diabetes, and the demand for necessities is typically inelastic, meaning that it does not change significantly with price fluctuations. Therefore, the statement that the demand for insulin is elastic is incorrect.

If the quantity demanded of a good is sensitive to a change in the price of that good, demand is said to be price elastic, not price inelastic. Price elastic demand means that a small change in price leads to a proportionally larger change in quantity demanded. On the other hand, price inelastic demand means that a change in price has a relatively smaller effect on quantity demanded.

The correct answer is the percentage change in the quantity demanded of a good divided by the percentage change in the price of that good. This is because price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It calculates how much the quantity demanded changes in response to a change in price, and is expressed as a ratio of the percentage change in quantity demanded to the percentage change in price.

If the income elasticity of demand for a good is negative, it means that as income increases, the demand for the good decreases. This suggests that the good is an inferior good. Inferior goods are those for which demand decreases as consumer income increases, as consumers tend to switch to higher-quality alternatives when they can afford them. Therefore, the correct answer is an inferior good.

The price elasticity of supply measures the responsiveness of the quantity supplied to a change in price. In this case, a price elasticity of supply of 1.3 indicates that a 10 percent increase in price would result in a 13 percent increase in quantity supplied. This means that suppliers are relatively responsive to price changes, and as the price of blue jeans increases, they are willing and able to increase the quantity supplied by a larger proportion. Therefore, the statement is true.

The given answer is true because the midpoint method calculates price elasticity of demand by taking the average of the initial and final price and quantity values. In this case, the initial price is 10 cents and the final price is 20 cents, resulting in an average price of 15 cents. The initial quantity demanded is 1,000 pencils and the final quantity demanded is 500 pencils, resulting in an average quantity of 750 pencils. When the price increases by 100% (from 10 cents to 20 cents), the quantity demanded decreases by 50% (from 1,000 pencils to 500 pencils). Since the percentage change in quantity demanded is equal to the percentage change in price, the demand for pencils is unit price elastic.

The statement is false because the demand for aspirin is generally more elastic in the long run compared to the short run. In the short run, consumers may have immediate health needs or specific ailments that require them to purchase aspirin regardless of price changes. However, in the long run, consumers have more time to adjust their behavior and explore alternative medications or treatments, making the demand for aspirin more responsive to changes in price.

If a small percentage increase in the price of a good greatly reduces the quantity demanded for that good, it indicates that the demand for the good is price elastic. This means that consumers are highly responsive to changes in price, and even a small increase in price leads to a significant decrease in demand.

If a supply curve for a good is price elastic, it means that the quantity supplied is sensitive to changes in the price of that good. This means that as the price of the good increases, the quantity supplied will also increase, and vice versa. In other words, suppliers are responsive to changes in price and are willing to adjust the quantity supplied accordingly.

The statement is false because the price elasticity of demand is actually defined as the percentage change in quantity demanded divided by the percentage change in price of a good. The formula is: Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price).

If a good is a necessity, it means that it is essential or required for consumers. In this case, even if the price of the good increases, consumers will still continue to purchase it because they cannot do without it. This leads to a situation where the quantity demanded does not change significantly in response to changes in price, making the demand curve for the good price inelastic.

The statement suggests that the demand for tires in general should be more inelastic (less responsive to price changes) compared to the demand for Goodyear brand tires specifically. This means that consumers are less likely to change their purchasing behavior for tires in general when the price changes, while they may be more sensitive to price changes when it comes to Goodyear brand tires.

If the cross-price elasticity between two goods is negative, it indicates that an increase in the price of one good leads to a decrease in the quantity demanded of the other good. This suggests that the two goods are complements, meaning they are typically consumed together. For example, if the price of hot dogs increases, the demand for hot dog buns would decrease, indicating that they are complements.

Transportation as a whole is likely to be the most price inelastic because it encompasses various modes of transportation such as airline tickets, bus tickets, and taxi rides. People generally need to travel for various reasons and may not have many alternatives to choose from. Therefore, even if the price of one mode of transportation increases, people are still likely to use some form of transportation, making the demand relatively unaffected by price changes.

When consumers believe that there are very few substitutes for a good, it means that they perceive the good as unique or irreplaceable. In this case, they are less likely to be sensitive to changes in price because they do not have many alternatives to choose from. As a result, demand for the good would tend to be price inelastic, meaning that a change in price would have a relatively small impact on the quantity demanded.

A flatter demand curve indicates that a small change in price leads to a relatively larger change in quantity demanded. This suggests that consumers are more responsive to price changes, making the demand curve price elastic.

If the cross-price elasticity of demand between two goods is positive, it means that an increase in the price of one good leads to an increase in the demand for the other good. This indicates that the goods are substitutes, not complements. Therefore, the statement is false.

If an increase in the price of a good has no impact on the total revenue in that market, it means that the percentage change in quantity demanded is equal to the percentage change in price. This indicates that the demand is neither price inelastic (where quantity demanded is not very responsive to price changes) nor price elastic (where quantity demanded is highly responsive to price changes). Instead, it suggests that the demand is unit price elastic, meaning that the percentage change in quantity demanded is equal to the percentage change in price.

If a demand curve is linear, the price elasticity of demand is not constant along it. The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. In a linear demand curve, the slope (or steepness) of the curve is constant, but the price elasticity of demand changes along the curve. At higher prices, the demand is more elastic (responsive to price changes), while at lower prices, the demand is less elastic (less responsive to price changes). Therefore, the statement is false.

If the demand for goods is price elastic, an increase in price will actually decrease total revenue. This is because consumers are highly responsive to price changes, and a higher price leads to a proportionally larger decrease in quantity demanded, reducing overall revenue.

An advance in technology that shifts the market supply curve to the right does not always increase total revenue received by producers. While it may lead to an increase in the quantity supplied and potentially lower production costs, the effect on total revenue depends on the price elasticity of demand. If demand is elastic, the increase in quantity supplied may not be enough to offset the decrease in price, resulting in a decrease in total revenue. Conversely, if demand is inelastic, the increase in quantity supplied may lead to an increase in total revenue. Therefore, the statement is false.

In a linear demand curve, the price elasticity of demand varies along the curve. In the upper portion of the curve, where prices are higher, the demand is more elastic, meaning that a small change in price will result in a relatively larger change in quantity demanded. In the lower portion of the curve, where prices are lower, the demand is more inelastic, meaning that a change in price will result in a relatively smaller change in quantity demanded. This is because consumers are more sensitive to price changes when prices are higher compared to when prices are lower.

Technological improvements in agriculture that shift the supply of agricultural commodities to the right tend to reduce total revenue to farmers as a whole because the demand for food is inelastic. This means that even with an increase in supply, the demand for food remains relatively constant. As a result, farmers are unable to increase prices to compensate for the increase in supply, leading to a decrease in total revenue.

When demand is price inelastic, it means that a change in price does not significantly affect the quantity demanded. In this case, a decrease in supply (shift to the left) would lead to a decrease in the quantity available in the market. As the quantity available decreases, the price is likely to increase due to the scarcity of the product. Since demand is price inelastic, consumers are willing to pay higher prices for the product, resulting in an increase in total revenue in the market.