Calculating the Elasticity of Demand Practice Questions | Marginal Revolution University

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Practice Questions

Calculating the Elasticity of Demand Practice Questions

If the elasticity of demand for college textbooks is -0.1, and the price of textbooks increases by 20%, how much will the quantity demanded change, and in what direction? *

a. The quantity demanded increases by 2%

b. The quantity demanded decreases by 20%

c. The quantity demanded decreases by 2%

d. The quantity demanded remains the same

If the elasticity of demand for spring break packages to Cancun is -5, and if you notice that this year in Cancun the quantity of packages demanded increased by 10%, then what happened to the price of Cancun vacation packages? *

a. The price fell by 10 percent

b. The price fell by 2 percent

c. The price increased by 2 percent

d. The price remained the same

In your college town, real estate developers are building thousands of new student-friendly apartments close to campus. If you want to pay the lowest rent possible, should you hope that demand for apartments is elastic or inelastic? *

a. Elastic

b. Inelastic

In your college town, the local government decrees that thousands of apartments close to campus are uninhabitable and must be torn down next semester. If you want to pay the lowest rent possible, should you hope that demand for apartments is elastic or inelastic? *

a. Elastic

b. Inelastic

The long-run elasticity of oil demand has been estimated at -0.5. If the price of oil rises by 10%, how much will the quantity of oil demanded fall? *

a. 5%

b. 0.5%

c. 2%

d. 20%

The long-run elasticity of oil demand has been estimated at -0.5. Does a 10% rise in oil prices increase or decrease total revenues to the oil producers? *

a. Increase

b. Decrease

In the United States, the long-run elasticity of oil demand has been estimated at -0.5. Some policymakers and environmental scientists would like to see the United States cut back on its use of oil in the long run. We can use this elasticity estimate to get a rough measure of how high the price of oil would have to permanently rise in order to get people to make big cuts in oil consumption. How much would the price of oil have to permanently rise in order to cut oil consumption by 50%? *

a. 5%

b. 25%

c. 50%

d. 100%

France has the largest long-run elasticity of oil demand (–0.6) of any of the large, rich countries, according to Cooper’s estimates. Does this mean that France is better at responding to long-run price changes than other rich countries, or does it mean France is worse at responding? *

a. Better at responding

b. Worse at responding

The elasticity of demand is 0.2. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. *

a. Relatively steep; raise total revenue

b. Relatively flat; raise total revenue

c. Relatively steep; lower total revenue

d. Relatively flat; lower total revenue

The elasticity of demand is 2.0. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. *

a. Relatively steep; raise total revenue

b. Relatively flat; raise total revenue

c. Relatively steep; lower total revenue

d. Relatively flat; lower total revenue

The elasticity of demand is 1.1. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. *

a. Relatively steep; raise total revenue

b. Relatively flat; raise total revenue

c. Relatively steep; lower total revenue

d. Relatively flat; lower total revenue

The elasticity of demand is 0.9. Is the demand curve relatively steep or flat? Will a fall in price raise total revenue or lower it? Note: we present the elasticity in terms of its absolute value. *

a. Relatively steep; raise total revenue

b. Relatively flat; raise total revenue

c. Relatively steep; lower total revenue

d. Relatively flat; lower total revenue

Henry Ford famously mass-produced cars at the beginning of the twentieth century, starting Ford Motor Company. He made millions because mass production made cars cheap to make, and he passed some of the savings to the consumer in the form of a low price. Cars became a common sight in the United States thereafter. Keeping total revenue and its relationship with price in mind, do you expect the demand for cars to be elastic or inelastic given the story of Henry Ford? *

a. Elastic

b. Inelastic

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Principles of Economics Microeconomics

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Introduction

Introduction to Microeconomics

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Opportunity Cost and Tradeoffs

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Marginal Thinking and the Sunk Cost Fallacy

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Supply, Demand, and Equilibrium

The Demand Curve

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The Supply Curve

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The Equilibrium Price and Quantity

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Understanding the Demand Curve: Shifts and Consumer Surplus

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What Shifts the Demand Curve?

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Change in Demand vs. Change in Quantity Demanded

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Understanding the Supply Curve: Shifts and Producer Surplus

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What Shifts the Supply Curve?

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Exploring Equilibrium

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Supply and Demand Terminology

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Does the Equilibrium Model Work?

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Elasticity and Its Applications

Elasticity of Demand

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Calculating the Elasticity of Demand

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Office Hours: Elasticity of Demand

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Elasticity of Supply

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Elasticity of Supply: Why Housing is Unaffordable

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Elasticity of Supply: Do Gun Buybacks Work?

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Taxes and Subsidies

Commodity Taxes

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Who Pays the Tax?

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Tax Revenue and Deadweight Loss

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The Price System

A Price Is a Signal Wrapped up in an Incentive

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Markets Link the World

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The Great Economic Problem

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Information and Incentives

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Prediction Markets

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Price Ceilings and Price Floors

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Price Ceilings: Shortages and Quality Reduction

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Price Ceilings: Lines and Search Costs

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Price Ceilings: Deadweight Loss

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Price Ceilings: Misallocation of Resources

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Price Ceilings: Rent Controls

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Rent Control in Mumbai

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Price Floors: Airline Fares

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Why Do Governments Enact Price Controls?

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Price Controls and Communism

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Another Look at Comparative Advantage

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Arguments Against International Trade

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Avengers: The Story of Globalization (Optional)

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The Coase Theorem

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Trading Pollution

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A Deeper Look at Tradable Allowances

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Externalities and Incentives: The Economics of COVID

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Costs and Profit Maximization Under Competition

Introduction to the Competitive Firm

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Maximizing Profit Under Competition

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Maximizing Profit and the Average Cost Curve

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Entry, Exit, and Supply Curves: Increasing Costs

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Entry, Exit, and Supply Curves: Constant Costs

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Entry, Exit, and Supply Curves: Decreasing Costs

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Competition and the Invisible Hand

Minimization of Total Industry Costs of Production

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The Balance of Industries and Creative Destruction

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Monopoly

Maximizing Profit Under Monopoly

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Office Hours: Calculating Monopoly Profit

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The Monopoly Markup

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The Costs and Benefits of Monopoly

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Price Discrimination

Introduction to Price Discrimination

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The Social Welfare of Price Discrimination

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The Marginal Product of Labor

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Human Capital and Signaling

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Compensating Differentials

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Do Unions Raise Wages?

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Public Goods and the Tragedy of the Commons

Public Goods and Asteroid Defense

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A Deeper Look at Public Goods

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The Tragedy of the Commons

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Asymmetric Information and Used Cars

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Asymmetric Information in Health Insurance

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Introduction to Consumer Choice

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Principles of Economics: Microeconomics

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