Question

1) Using the midpoint method, the price elasticity of demand is determined to be about 0.85. If there is a 10% decrease in the quantity demanded of the product then what effect would this have on the price of the product?

A decrease in the price of the product from $8.50 to $10

A 11.8% increase in the price of the product

An increase in the price of the product from $8.50 to $10

2)The ________ is negative for complementary goods and positive for substitute goods.

income elasticity of demand

cross-price elasticity of demand

price elasticity of demand

3)You read an article stating that HTC’s latest cell phone price has increased from $450 to $550. At the same time the quantity demanded for the Samsung Galaxy 7s increases from 1000 to 1850. Calculate the cross price elasticity of demand using the midpoint method. Are these two cell phones complements or substitutes?

The cross-price elasticity of demand is 2.98 and they are substitutes.

The cross-price elasticity of demand is -2.98 and they are compliments.

The cross-price elasticity of demand is .33 and they are substitutes.

4)What is the price elasticity of demand for designer shoes if for every 20% price increase clothing demand decreases by 5%. The price elasticity of demand would be

-.5; inelastic

-.25; inelastic

-4; elastic

5)Another name for calculating percentage changes is computing

the initial method.

the arc approach.

growth rates.

6)The equation for calculating the price elasticity of demand

takes into account slope.

does not use percent change in the numerator and denominator.

uses percent change in both the numerator and denominator.

7)If the change % in quantity and % change in price from a graph for gasoline is less than 1, it is considered

inelastic.

unitary.

elastic.

Answer 1

Question 1

Price elasticity of demand = 0.85

% decrease in quantity demanded = 10

Quantity demanded decreases when price increases.

So,

% increase in price = % decrease in quantity demanded/Price elasticity of demand = 10/0.85 = 11.8

Thus,

The price of the product will increase by 11.8%

Hence, the correct answer is the option (2).

Question 2

Elasticity with respect to complementary and substitute goods or related goods is referred to as cross price elasticity of demand.

So,

The cross-price elasticity of demand is negative for complementary goods and positive for substitute goods.

Hence, the correct answer is the option (2).