Week 5 Quiz

In the course's illustrative elasticity schedule, demand follows Qd = 200 − 20P, with P in dollars: 120 units are demanded at 4 dollars and 80 at 6 dollars. Using the midpoint formula, what is the price elasticity of demand as the price rises from 4 to 6 dollars?

Select one.

• −1.0
• −0.4286
• −2.3333
• −20

On the same illustrative schedule, Qd = 200 − 20P, the midpoint formula gives E_d = −0.4286 for the price rise from 2 to 4 dollars. Which description of demand on this segment is accurate?

Select one.

• Elastic, because the elasticity is a negative number below 1
• Inelastic, because the magnitude of the elasticity is below 1
• Unit-elastic, because the line's slope never changes
• Perfectly inelastic, because quantity demanded falls

A seller facing the illustrative schedule Qd = 200 − 20P charges 6 dollars and sells 80 units. It is thinking about raising the price to 8 dollars, where 40 units sell. By the total-revenue test, what happens to total revenue, and why?

Select one.

• It rises, because each unit now sells for 2 dollars more
• It stays at 480 dollars, because the line's slope is constant
• It falls from 480 to 320 dollars, because demand on that segment is elastic
• It falls from 480 to 320 dollars, because demand on that segment is inelastic

True or false: on the illustrative schedule Qd = 200 − 20P, every 2-dollar price step lowers quantity demanded by the same 40 units, so the price elasticity of demand is the same on every segment.

True or false.

• True
• False

On the illustrative schedule Qd = 200 − 20P, the good's own price rises from 4 to 6 dollars and nothing else changes, so quantity demanded falls from 120 to 80 units. Which statement describes this change and what its price elasticity of demand measures?

Select one.

• Demand decreased, and the elasticity measures how far the demand curve shifted left
• Quantity demanded fell along an unchanged demand curve, and the elasticity measures how strongly it responded
• Supply decreased, and the elasticity measures how far the supply curve shifted
• Demand increased, and the elasticity measures the rise in total revenue

In an illustrative household, income rises from 40,000 to 60,000 dollars a year, a 40% rise by the midpoint formula, and restaurant meals rise from 6 to 10 a month. Using the midpoint formula, what is the income elasticity of demand for restaurant meals, and what kind of good does it show?

Select one.

• 0.8, a normal good that is income-inelastic
• −1.25, an inferior good
• 1.25, a normal good that is income-elastic
• 4.0, a normal good, from the four extra meals

In the same illustrative household, income rises from 40,000 to 60,000 dollars a year and bus rides fall from 30 to 20 a month, so the income elasticity of demand for bus rides is −1.0 by the midpoint formula. What does that result show?

Select one.

• Bus rides are an inferior good for this household, because it rides less as its income rises
• Bus rides are a low-quality good, because the elasticity is negative
• Bus rides are a normal good, because the magnitude of the elasticity is 1
• Bus rides are unit-elastic in price, so a fare change leaves fare revenue unchanged

At an illustrative café, the price of coffee rises from 2 to 3 dollars a cup, a 40% rise by the midpoint formula, and muffin sales fall from 50 to 30 a day. Using the midpoint formula, what is the cross-price elasticity of demand for muffins with respect to the price of coffee, and what does it show?

Select one.

• 1.25, so muffins and coffee are substitutes
• −1.25, so muffins and coffee are substitutes, since one rose and the other fell
• −0.8, so muffins and coffee are complements
• −1.25, so muffins and coffee are complements

Which of these changes would tend to make buyers' demand for a good more price-elastic? Select every one that applies.

Select every option that applies.

• Close substitutes for the good become available
• The good becomes a smaller share of buyers' budgets
• Buyers have more time to adjust to a price change
• The market is defined more narrowly, as one brand rather than a whole category
• Buyers come to treat the good as a necessity rather than a luxury

On the illustrative schedule Qd = 200 − 20P, every price elasticity of demand the midpoint formula gives, on any segment of the line, carries a minus sign. Why is the sign negative?

Select one.

• Because the demand curve shifts left whenever the price rises
• Because the good is an inferior good
• Because total revenue falls every time the seller raises its price
• Because price and quantity demanded move in opposite directions