Microeconomics

Elasticity
Tasks and individual work
5.1 Price Elasticity of Demand 1) Refer to Figure 5.1. The demand for tickets is:
A) perfectly price elastic.
B) perfectly price inelastic.

2) Refer to Figure 5.1. The price elasticity of demand for tickets

A) is equal to zero.
B) is equal to 1.
C) is infinity.
5.1 Price Elasticity of Demand 1) Refer to Figure 5.1. The demand for tickets is:
A) perfectly price elastic.
B) perfectly price inelastic.

2) Refer to Figure 5.1. The price elasticity of demand for tickets

A) is equal to zero.
B) is equal to 1.
C) is infinity.
When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for
fresh fish is ________ and total revenue from fresh fish sales will ________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; decrease
D) elastic; increase
When the price of fresh fish increases 10%, quantity demanded decreases 5%. The price elasticity of demand for
fresh fish is inelastic and total revenue from fresh fish sales will increase.
A) inelastic; increase
B) inelastic; decrease
C) elastic; decrease
D) elastic; increase

E. g.:
P=10 Q=100 TR = 1 000
P1=11 Q1= 95 TR = 1 045
When the price of coffee increases 5%, quantity demanded decreases 10%. The price elasticity of demand for coffee
is ________ and total revenue from coffee sales will ________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease
When the price of coffee increases 5%, quantity demanded decreases 10%. The price elasticity of demand for coffee
is elastic and total revenue from coffee sales will decrease.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease

E. g.:
P=10 Q=100 TR = 1 000
P1=10.5 Q1= 90 TR = 945
The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of
demand is -2.5, the company must
A) increase price by 2.0%.
B) decrease price by 2.0%.
C) increase price by 0.5%.
D) decrease price by 0.5%.
The ABC Computer Company wants to increase the quantity of computers it sells by 5%. If the price elasticity of
demand is -2.5, the company must
A) increase price by 2.0%.
% change in quantity demanded
B) decrease price by 2.0%. Price elasticity of demand =
% change in price
C) increase price by 0.5%.
D) decrease price by 0.5%.

P1 = Q% x Pelasticity = 5% x (-2.5) = -2%

The price rises from $4 to $6 and quantity demanded falls from 120 to 80.

Calculate the Price elastisity of demand.

(Q 2 - Q1) /[(Q1  Q 2) / 2]
Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]
The price rises from $4 to $6 and quantity demanded falls from 120 to 80.

Calculate the Price elastisity of demand.

(Q 2 - Q1) /[(Q1  Q 2) / 2]
Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]

% change in price = (6 - 4)/5 × 100% = 40%

% change in quantity demanded = (80-120)/100 = -40%

price elasticity of demand = 40/40 = -1

A government wants to reduce electricity consumption by 5%. The price elasticity of demand for electricity is -
0.5. The government must ________ the price of electricity by ________.
A) raise; 10.0%
B) raise; 1.0%
C) raise; 0.1%
D) lower; 0.5%
A government wants to reduce electricity consumption by 5%. The price elasticity of demand for electricity is -
0.5. The government must raise the price of electricity by 10.0%.
A) raise; 10.0%
B) raise; 1.0%
C) raise; 0.1%
D) lower; 0.5%

P1% = 5% / (-0,5) = 10%

The price elasticity of demand for kale in Texas is -2, and the price elasticity of demand for kale in California is -
0.5. In other words, demand in Texas is ________, and demand in California is ________.
A) elastic; inelastic
B) inelastic; elastic
C) elastic; unit elastic
The price elasticity of demand for kale in Texas is -2, and the price elasticity of demand for kale in California is -
0.5. In other words, demand in Texas is elastic (>1), and demand in California is inelastic (<1).
A) elastic; inelastic
B) inelastic; elastic
C) elastic; unit elastic
When the price of oysters decreases 25%, quantity demanded increases 10%. The price elasticity of demand for
oysters is ________ and total revenue from oyster sales will ________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; decrease
D) elastic; increase

Calculate price elasticity.

When the price of oysters decreases 25%, quantity demanded increases 10%. The price elasticity of demand for
oysters is inelastic and total revenue from oyster sales will decrease.
A) inelastic; increase
B) inelastic; decrease
C) elastic; decrease
D) elastic; increase

P elasttisity = 10%/25% = 0,4

A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -
0.1. The government must ________ the price of electricity by ________.
A) raise; 100.0%
B) raise; 10.0%
C) raise; 1.0%
D) lower; 20%
A government wants to reduce electricity consumption by 10%. The price elasticity of demand for electricity is -
0.1. The government must raise the price of electricity by 100.0%.
A) raise; 100.0%
B) raise; 10.0%
C) raise; 1.0% % change in quantity demanded
Price elasticity of demand =
D) lower; 20% % change in price

P1% = 10% / (-0,1) = 100%

Refer to Figure 5.2. If the price of a hamburger increases from $8 to $10, the price
elasticity of demand equals ________. Use the midpoint formula.
A) -0.33
B) -3.0
C) -30.
D) -300
Refer to Figure 5.2. If the price of a hamburger increases from $8 to $10, the price
elasticity of demand equals -3.0. Use the midpoint formula.
A) -0.33
B) -3.0
C) -30.
D) -300

(Q 2 - Q1) /[(Q1  Q 2) / 2]
% change in price = (10 - 8)/9 × 100% = 22% Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]

% change in quantity demanded = (1 - 2)/1,5 x 100%= -66%

price elasticity of demand = 66%/(-22%) = -3

Refer to Figure 5.2. If the price of a hamburger increases from $6 to $8, the price
elasticity of demand equals ________. Use the midpoint formula.
A) -0.24
B) -1.0
C) -1.4
D) -2.0

(Q 2 - Q1) /[(Q1  Q 2) / 2]
Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]
Refer to Figure 5.2. If the price of a hamburger increases from $6 to $8, the price
elasticity of demand equals -0,014. Use the midpoint formula.
A) -0.24
B) -1.0
C) -0,014
D) -2.0

(Q 2 - Q1) /[(Q1  Q 2) / 2]
Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]
% change in price = (8 - 6)/7 × 100% = 28%

% change in quantity demanded = (2 - 3)/2,5 x 100% = -0,4%

price elasticity of demand = (-0,4%)/28% = -0,014

Refer to Figure 5.2. If the price of a hamburger decreases from $10 to $6, the price
elasticity of demand equals ________. Use the midpoint formula.
A) -0.5
B) -2.0
C) -20
D) -200

(Q 2 - Q1) /[(Q1  Q 2) / 2]
Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]
Refer to Figure 5.2. If the price of a hamburger decreases from $10 to $6, the price
elasticity of demand equals -2.0. Use the midpoint formula.
A) -0.5
B) -2.0
C) -20
D) -200

(Q 2 - Q1) /[(Q1  Q 2) / 2]
Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]

% change in price = (6 - 10)/8 × 100% = -0,5%

% change in quantity demanded = (3 - 1)/2 x 100% = 1%

price elasticity of demand = 1%/(-0,5)% = -2

Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line
segment ________ of the demand curve, the demand is elastic.
A) AC
B) BE
C) CF
D) AF
Refer to Figure 5.2. At Point C the price elasticity of demand is -1. Along line
segment AC of the demand curve, the demand is elastic.
A) AC
B) BE
C) CF
D) AF
At a price of $20, a store can sell 24 picture frames a day. At a price of $18 the store can sell 33 picture frames a day.
Since total revenue ________ by the price decrease, demand must be ________.
A) is increased; elastic
B) is increased; inelastic
C) is increased; unit elastic
D) is decreased; elastic
At a price of $20, a store can sell 24 picture frames a day. At a price of $18 the store can sell 33 picture frames a day.
Since total revenue is increased by the price decrease, demand must be elastic.
A) is increased; elastic
B) is increased; inelastic
C) is increased; unit elastic
D) is decreased; elastic

TR1 = 20$ x 24 = 480$

TR2 = 18$ x 33 = 594$
Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger
increases from $7 to $9, the price elasticity of demand equals ________ and
the increase results in a(n) ________ in total revenue.
A) -0.375; increase
B) -0.5; decrease
C) -2.67; decrease
D) -8; decrease

(Q 2 - Q1) /[(Q1  Q 2) / 2]
Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]
Refer to Figure 5.3. Using the midpoint formula, if the price of a gardenburger
increases from $7 to $9, the price elasticity of demand equals -2,66 and the
increase results in a(n) decrease in total revenue.
A) -0.375; increase
B) -0.5; decrease
C) -2.67; decrease
D) -8; decrease

(Q 2 - Q1) /[(Q1  Q 2) / 2]
% change in price = (9 - 7)/8 × 100% = 0,25% Price elasticity of demand =
(P 2 - P 1) /[(P 1  P 2) / 2]
% change in quantity demanded = (2 - 4)/3 x 100% = -66%
price elasticity of demand = (-0,66…)%/0,25% = -2,66…

TR1 = 7$ x 4 = 28$
TR2 = 9$ x 2 = 18$
The owner of a local hot dog stand has estimated that if he lowers the price of hot dogs from $2.00 to $1.50, he
will increase sales from 400 to 500 hot dogs per day. Using the midpoint formula, the demand for hot dogs is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.
The owner of a local hot dog stand has estimated that if he lowers the price of hot dogs from $2.00 to $1.50, he
will increase sales from 400 to 500 hot dogs per day. Using the midpoint formula, the demand for hot dogs is
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

% change in price = (1,5 - 2)/1,75 × 100% = -28%

% change in quantity demanded = (500 - 400)/450 x 100% = 22%
price elasticity of demand = 22%/(-28%) = (0,78) (< 1)
If government officials are mainly interested in generating tax revenue, then they should tax goods
for which demand is price elastic.

TRUE or FALSE?
If government officials are mainly interested in generating tax revenue, then they should tax goods
for which demand is price elastic.

FALSE
A tax on a good whose demand is price elastic will be effective in discouraging consumption of that
good.

TRUE or FALSE?
A tax on a good whose demand is price elastic will be effective in discouraging consumption of that
good.

TRUE
Refer to Figure 5.7. Before the tax, store owners are willing to sell ________ pumpkins at a price of
________ each.

A) 1,200; $5.50
B) 700; $7.25
C) 0; $8.50
D) 1,200; $8.50

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.
Refer to Figure 5.7. Before the tax, store owners are willing to sell ________ pumpkins at a price of
________ each.

A) 1,200; $5.50
B) 700; $7.25
C) 0; $8.50
D) 1,200; $8.50

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.
Refer to Figure 5.7. After the tax, store owners are willing to sell ________ pumpkins at a price of
________ each.

A) 1,200; $5.50
B) 700; $7.25
C) 0; $8.50
D) 1,200; $7.25

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.
Refer to Figure 5.7. After the tax, store owners are willing to sell ________ pumpkins at a price of
________ each.

A) 1,200; $5.50
B) 700; $7.25
C) 0; $8.50
D) 1,200; $7.25

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.
Refer to Figure 5.7. The amount of the tax is ________ per pumpkin.

A) $1.25
B) $1.75
C) $3.00
D) $7.25

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.
Refer to Figure 5.7. The amount of the tax is ________ per pumpkin.

A) $1.25
B) $1.75
C) $3.00
D) $7.25

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.
Refer to Figure 5.7. The total revenue the government will receive from the imposition of this tax is

A) $875.
B) $1,225.
C) $2,100.
D) $3,600.

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.
Refer to Figure 5.7. The total revenue the government will receive from the imposition of this tax is

A) $875.
B) $1,225.
C) $2,100.
D) $3,600.

700 x 3 = 2100

The above figure represents the market for pumpkins both

before and after the imposition of an excise tax, which is
represented by the shift of the supply curve.