Class activities Chapter Elasticity and its Applications PDF

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These class activities helps the student in order to understand and to perform well in the exams. I always Use them so i can have a good grade and they are extremely helpful....

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CA Chapter 05 -01 Keys 8) If the price increases by 10 percent, and the quantity demanded falls by 5 percent, the absolute value of the price elasticity will be A) 0.5. B) 5.0. C) 50. D) -5.0. Answer: A Explanation: The price elasticity formula is the percentage change in quantity demanded divided by the percentage change in price. In this case X=.10/.05=0.5. 9) Assume the price elasticity of demand for U.S. Frisbee Co. Frisbees is 0.5. If the company increases the price of each Frisbee from $12 to $16, the number of Frisbees demanded will A) Decrease by 14.3 percent. B) Decrease by 33.3 percent. C) Increase by 20.0 percent. D) Increase by 7.0 percent. Answer: A Explanation: Price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. From that, one can manipulate the formula to compute the percentage change in quantity demanded by multiplying the price elasticity of demand by the percentage change in price. Therefore the percentage change in quantity is equal to 0.5 *28.6% percentage change in price using the midpoint formula ((16 - 12)/((16 + 12)/2)). 10) If the elasticity of demand is 3, and the price rises by 15 percent, then A) The quantity demanded will increase by 5 percent. B) The quantity demanded will fall by 45 percent. C) The quantity demanded will rise by 4.5 percent. D) The percentage change in quantity demanded will fall as income rises. Answer: B Explanation: The basic formula for price elasticity is the price elasticity of demand number = the percentage change in quantity demanded divided by the percentage change in price. 3 = x/.15 =.45, so quantity demanded falls by 45 percent.

11) If the price of sandals increases by 10 percent and the quantity demanded falls by 20 percent, then the price elasticity of demand in absolute value is A) .2. B) 2. C) 20 percent. D) 2 percent. Answer: B Explanation: The formula for the price elasticity of demand is the absolute value (drop the negative sign) of the percentage change in quantity demanded divided by the percentage change in price. 20%/10%=2. 12) If the price of cell phones increases by 5 percent and the quantity demanded falls by 2 percent, the absolute value of the price elasticity of demand is A) 5.0. B) 0.4. C) 2.1. D) 5 percent. Answer: B Explanation: The price of elasticity formula is the percentage change in quantity demanded divided by the percentage change in price. Here it is 2%/5%=.4 (dropping the negative sign). 13) Assume the price elasticity of demand for JT Chip Co. chips is 4.0. If the company decreases the price of each bag of chips from $1.89 to $1.49, the number of bags sold will A) Decrease by 78 percent. B) Increase by 95 percent. C) Increase by 48 percent. D) Increase by 78 percent. Answer: B Explanation: The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. From that, one can manipulate the formula to compute the percentage change in quantity demanded by multiplying the price elasticity of demand by the percentage change in price. Therefore the percentage change in quantity is equal to 4 *23.7% - the percentage change in price using the midpoint formula ((1.49 - 1.89)/((1.49 + 1.89)/2)). 16) Suppose the quantity demanded of ski boats falls from 4.0 million to 3.0 million as a result of an average price increase from $20,000 to $25,000 per boat. The absolute value of the price elasticity of demand is closest to A) 0.20. B) 1.29. C) 0.78. D) 0.29.

Answer: B Explanation: The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. Therefore the price elasticity of demand is equal to ((4-3)/((4+3)/2))/((25,000-20,000)/((25,000+20,000)/2)) or 1.29. 17) Suppose a university raises its tuition by 6 percent and as a result the enrollment of students decreases by 3 percent. The absolute value of the price elasticity of demand is A) 0.5. B) 2.0. C) 8.0. D) 6.0. Answer: A Explanation: The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. Therefore the price elasticity of demand is equal to 3/6 or 0.5. 18) If the price of the iPhone X falls by 3 percent and the price elasticity of demand for iPhone X is 2.0, then quantity demanded will rise by what percentage? A) 5 percent. B) 6 percent. C) 0.6 percent. D) 60 percent. Answer: B Explanation: The basic formula for price elasticity is the percentage change in quantity demanded divided by the percentage change in price. Substituting 2 for the price elasticity number (E), you have 2 = x/.03 =.06 or 6 percent. 18) If the price of the iPhone X falls by 3 percent and the price elasticity of demand for iPhone X is 2.0, then quantity demanded will rise by what percentage? A) 5 percent. B) 6 percent. C) 0.6 percent. D) 60 percent. Answer: B Explanation: The basic formula for price elasticity is the percentage change in quantity demanded divided by the percentage change in price. Substituting 2 for the price elasticity number (E), you have 2 = x/.03 =.06 or 6 percent.

18) If the price of the iPhone X falls by 3 percent and the price elasticity of demand for iPhone X is 2.0, then quantity demanded will rise by what percentage? A) 5 percent. B) 6 percent. C) 0.6 percent. D) 60 percent. Answer: B Explanation: The basic formula for price elasticity is the percentage change in quantity demanded divided by the percentage change in price. Substituting 2 for the price elasticity number (E), you have 2 = x/.03 =.06 or 6 percent. 19) If demand is elastic, then A) The elasticity number E is greater than 1. B) The elasticity number E is less than 1. C) The elasticity number E is equal to 1. D) The elasticity number E is 0. Answer: A Explanation: Quantity demanded will be greater than the percentage change in price, so the elasticity number E will be greater than 1 if demand is elastic. 20) When demand is elastic, the absolute number for price elasticity will be A) Greater than 0. B) Less than 1. C) Greater than 1. D) Equal to 1. Answer: C Explanation: The price elasticity formula is the percentage change in quantity demanded divided by the percentage change in price. When demand is price-elastic, the percentage change in quantity demanded will be greater than the percentage change in price, so the absolute number will always be greater than 1. For example, foreign airline travel tests out to = 3.5.

21) If the demand for a product is elastic, then A) The percentage change in quantity demanded is greater than the percentage in price. B) The percentage change in price is greater than the percentage change in quantity demanded. C) The change in the quantity demanded is greater than the change in income. D) Buyers are not very sensitive to a change in price. Answer: A Explanation: When demand for a product is elastic, the percentage change in quantity demanded is greater than the percentage change in price. 22) A demand curve that is perfectly inelastic is A) Horizontal. B) Vertical. C) Upward-sloping. D) Downward-sloping. Answer: B Explanation: A vertical demand curve implies that an increase in price won't affect the quantity demanded. In this situation of completely inelastic demand, consumers are willing to pay any price to get a particular quantity.

23) When demand is inelastic A) The percentage change in price is greater than the percentage change in quantity demanded. B) Buyers are very sensitive to changes in price. C) The product in demand has many substitute goods. D) The percentage change in quantity demanded is greater than the percentage change in price. Answer: A Explanation: When demand is inelastic, the percentage change in price is greater than the percentage change in quantity demanded. 25) If demand is very inelastic, A) The demand curve will be very flat. B) The demand curve will be horizontal. C) The demand curve will be very steep. D) The demand curve is upward-sloping. Answer: C Explanation: When demand is inelastic, a percentage change in price (moving along the vertical axis of a demand graph) will cause a very small change in quantity demanded (a slight movement along the horizontal axis of the demand graph). The result is a very steep demand curve if demand is inelastic....