Question

An increase in the price of a small town newspaper from $.70 to $.90 results in a decrease in sales from 2,880 to 1,920 per day. The price elasticity of demand coefficient (using the midpoint formula is for this newspaper. a. 0.25 b. 0.625 c. 1.4 d. 1.6 At a typical store, there are dozens of choices on the breakfast cereal aisle. Therefore, the demand for Cheerios is expected to be: price-elastic since consumers can switch to corn flakes or shredded wheat if the price of Cheerios increases. price-inelastic since consumers can switch to corn flakes or shredded wheat if the price of Cheerios increases. price-elastic since consumers who prefer Cheerios would never consider switching to corn flakes or shredded wheat. price-inelastic since it would not be possible for the price of corn flakes or shredded wheat to remain the same when the price of Cheerios is increasing. 9. When the price of gasoline goes up, the resulting fall in consumption is likely to be larger after a longer period of time has passed because consumers have found ways to conserve. For this reason, the demand for gasoline is thought to be: more elastic in the long run than in the short run. more inelastic in the long run than in the short run. highly elastic in both the short run and the long run. highly inelastic in both the short run and the long run. Use the graph below to answer question 10. Price $12.50 $7.50 Quantity 160 240 As price falls from $12.50 to $7.50 and quantity demanded increases from 160 to 240 units, the price elasticity of demand, calculated using the midpoint formula, is equal to: a. 50 percent divided by 40 percent, which is 1.25 so demand is elastic. 50 percent divided by 40 percent, which is 1.25 so demand is inelastic. 40 percent divided by 50 percent, which is 0.8 so demand is elastic. 40 percent divided by 50 percent, which is 0.8 so demand is inelastic. od

Answer 1

7. By using mid-point formula:

% change in Qd = [(2880-1920)/(2880+1920)/2]100 = (960/2400)100= 40%

% change in price = [(0.90-0.70)/(0.90+0.70)/2]100 = (0.20/0.80)100 = 25%

Price elasticity of demand = (40/25)= 1.6

Hence, option(D) is correct.

8. At a typical store ,there are dozens of choices on the breakfast cereal aisle.Therefore, the demand for Cheerios is expected to be price-elastic since consumers can switch to corn flakes or shredded wheat if the price of Cheerios increases. Hence, option(A) is correct.

9. When the price of gasoline goes up , the resulting fall in consumption is likely to be larger after a longer period of time has passed because consumers have found ways to conserve. For this reason , the demand for gasoline is though to be more elastic in the long run than in the short run. Hence, option(A) is correct.

10. By using mid point formula:

% change in Qd = [(240-160)/(240+160)/2]100 = (80/200)100 = 40%

% change in price = [(12.50-7.50)/(12.50+7.50)/2]100 =(5/10)100 = 50%

Price elasticity of demand = (40%/50%) = 0.8

This means the price elasticity of demand is 40 percent divided by 50 percent , which is 0.8 , so demand is inelastic. Hence, option(D) is correct.