Module 3.7

The price elasticity of demand for Stork ice cream is -4. Suppose you're told that following a price increase, quantity demanded fell by 10 percent. What was the percentage change in price that brought about this change in quantity demanded?

2.5 percent

If the absolute value of the price elasticity of demand for aspirin equals 0.8 then Answers: the demand for aspirin is elastic. aspirin is a normal good. the demand for aspirin is inelastic. aspirin has few substitutes.

the demand for aspirin is inelastic.

If demand is inelastic, the absolute value of the price elasticity coefficient is greater than one. t/f

false

If the absolute value of the price elasticity of demand for gasoline is 0.5, then a 10 percent increase in the price of gasoline leads to a 0.5 percent decrease in the quantity demanded. t/f

false

A good is said to have a relatively elastic demand if the value of price elasticity is: Answers: equal to 0. between 0.5 and 1. greater than 1. between 0 and 0.5.

greater than 1

Which of the following statements correctly differentiates between the slope of the demand curve and price elasticity of demand along a linear demand curve? Answers: The price elasticity of demand is a product, whereas the slope of a demand curve is a ratio. The price elasticity of demand is a ratio, whereas the slope of a demand curve is a product. The price elasticity of demand for a good varies along the demand curve, whereas the slope of the demand curve remains the same at different points on the curve. The price elasticity of demand for a good is the same at different points on the demand curve, whereas the slope of the demand curve varies depending on the point where it is measured.

The price elasticity of demand for a good varies along the demand curve, whereas the slope of the demand curve remains the same at different points on the curve.

If a 1% change in the price of a good causes a 1% change in the quantity demanded, the good has an elasticity of demand: . Answers: equal to 1. less than 1. equal to 0. greater than 1.

equal to 1

Facing stiff competition, Hendrix College, a small liberal arts institution in Conway, Ark., decided two years ago to bolster its academic offerings, promising students at least three hands-on experiences outside the classroom, including research, internships and service projects. Although it raised tuition and fees by 29 percent, enrollment in the freshman class rose by 37 percent. Source: Jonathan D. Glater and Alan Finder, "In New Twist on Tuition Game, Popularity Rises With the Price," New York Times, December 12, 2006 Based on the information above, the demand for Hendrix College education is relatively inelastic. perfectly elastic. unit elastic. More information is needed to answer the question.

relatively inelastic

The price elasticity of demand is equal to the percentage change in quantity demanded divided by the percentage change in price. the value of the slope of the demand curve. the percentage change in price divided by the percentage change in quantity demanded. the change in quantity demanded divided by the change in price.

the percentage change in quantity demanded divided by the percentage change in price.

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3, then quantity demanded Answers: will decrease by 45 percent. will decrease by 5 percent. will increase by 5 percent. will increase by 45 percent.

will decrease by 45 percent