True/False If the quantity demanded for a product increases from 100 to 150 unit

Question

True/False
If the quantity demanded for a product increases from 100 to 150 units when
the price decreases from $14 to $10, the price elasticity of demand for this product,
using the midpoint formula, in this price range is 1.2


A product with a price elasticity of demand equal to 1.5 is described as price
inelastic.

Demand tends to be inelastic at higher prices and elastic at lower prices.

Multiple Choice
If price rises from $80 to $90 and quantity demanded falls from 250 to 200,
then
a. The demand is inelastic
b. Total receipts rise.
c. Elasticity is equal to 0.625.
d. Elasticity is greater than one.

When Detroit’s bus fare increased from 40 cents to 60 cents, the number of riders
decreased from 800 per week to 620 per week. Over the price range given, the demand
curve for bus service in Detroit is
a. Elastic
b. Unit elastic
c. Inelastic
d. Impossible to determine

Stan’s Discount Tires reduced the price on its Goodyear radial tires from $65
per tire to $55 per tire. The following month, sales of this tire increased from
320 units to 500 units. The coefficient of elasticity for this tire was
a. 1.0
b. 0.63
c. 3.65
d. 1.33

A 20 percent increase in Miss Sarlo’s income resulted in an increase in her
annual consumption of steak from 10 to 15 pounds. Miss Sarlo’s income elasticity
of demand for steak is
a. 0.25
b. 0.50
c. 2.0
d. 2.5

Explanation / Answer

1. Ans: True

Explanation:

PED = ?Q/?P *( P1 + P2 / Q1 + Q2) = (50 / 4) * (24 / 250) = 1200 / 1000 = 1.2

2. Ans: False

Explanation:

If PED is greater than 1, then demand for the product is elastic and if PED is less than 1, then demand for the product is inelastic. In the question since PED is 1.5, demand for the product will be elastic. Thus, the statement is false.

3. Ans: False

Explanation:

The currect statement is: Demand tends to be elastic at higher prices and inelastic at lower prices.

4. Ans: Elasticity is greater than one.

Explanation:

PED = ?Q/?P *( P1 + P2 / Q1 + Q2) = (50 / 10) * (170 / 450) = 8,500 / 4500 = 1.89

5. Ans: Inelastic

Explanation:

PED = ?Q/?P *( P1 + P2 / Q1 + Q2) = (180 / 20) * (100 / 1420) = 18000 / 28400 = 0.63

If PED is greater than 1, then demand for the product is elastic and if PED is less than 1, then demand for the product is inelastic.

6. Ans: 3.65

Explanation:

PED = ?Q/?P *( P1 / Q1) = (180 / 10) * (65 / 320) = 11700 / 3200 = 3.65

7. Ans: 2.5

Explanation:

Consumption increases by 50%.     [i.e. (15 - 10) / 100) * 100 = 50%]

Income elasticity of demand = % change in demand / % change in income

                                             = 50% / 20%

                                             = 2.5

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