1)The tire shop sells 50 tires a day at $75. After they raise the price on tires to $85, they now sell 46 tires a day. What is the elasticity of tires at the tire shop?
A) Inelastic
B) Elastic
C) Unit Elastic
D) Perfectly Inelastic
E) Perfectly Elastic
2)Which of the following goods is more likely to be elastic, and why?Toothpaste or a gold necklace.
A) Gold neckalce because it is more valuable.
B) Toothpaste because it is a necessity.
C) Gold necklace because it is a luxury.
D) Toothpaste because it has many substitutes.
3)The local deli sells 100 sandwiches for $4 each. They raise the price to $5 each and then sell 80 sandwiches. What is the elasticity of sandwiches at this deli?
A) Inelastic
B) Elastic
C) Unit Elastic
D) Perfectly Inelastic
E) Perfectly Elastic
4)Pizza Villa increased the price of its deluxe pizza from $10.50 to $11.00. They sold 200 pizzas at the old price and 190 pizzas at the new price. Using the total expenditures method, this indicates demand for the product is
A) elastic, because revenue increased by $10.
B) elastic, because revenue decreased by $10.
C) inelastic, because revenue increased by $10.
D) inelastic, because revenue decreased by $10.
E) unit elastic
5)Which of the following goods is more likely to be elastic, and why?Coca-Cola or all cola-flavored products.
A) All cola flavored products because they are not as tasty as Coca-Cola.
B) All cola flavored products because they have fewer subsitutes.
C) Coca-Cola because it has more substitues.
D) Coca-Cola because it is a luxury.
Answers I think are right:
1.B
2.D
3.A
4.D
5.C
1) To calculate the elasticity of tires at the tire shop, we need to use the formula for price elasticity of demand, which is:
Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)
First, let's calculate the percentage change in quantity demanded:
Percentage change in quantity demanded = ((New quantity demanded - Old quantity demanded) / Old quantity demanded) * 100
In this case, the old quantity demanded is 50 tires and the new quantity demanded is 46 tires:
Percentage change in quantity demanded = ((46 - 50) / 50) * 100 = -8%
Next, let's calculate the percentage change in price:
Percentage change in price = ((New price - Old price) / Old price) * 100
In this case, the old price is $75 and the new price is $85:
Percentage change in price = ((85 - 75) / 75) * 100 = 13.33%
Now, let's substitute these values into the elasticity formula:
Elasticity = (-8% / 13.33%) ≈ -0.6
Since the elasticity is less than 1 (in absolute value), but greater than 0, the tires at the tire shop are considered to be elastic. Thus, the correct answer is B) Elastic.
2) To determine which good is more likely to be elastic, we need to consider factors such as availability of substitutes and necessity/luxury status.
Toothpaste is often considered a necessity as it is commonly used for oral hygiene. It also has a wide range of substitutes available, including other toothpaste brands, mouthwash, and natural alternatives. This means that if the price of toothpaste increases, consumers have the option to switch to cheaper substitutes, making it more likely to be elastic.
A gold necklace, on the other hand, is typically considered a luxury item. It holds sentimental and aesthetic value, but it does not have as many readily available substitutes. Therefore, it is less likely to be elastic.
Hence, the correct answer is D) Toothpaste because it has many substitutes.
3) Similar to the previous example, we can calculate the elasticity of sandwiches at the deli using the price elasticity of demand formula:
Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)
First, let's calculate the percentage change in quantity demanded:
Percentage change in quantity demanded = ((New quantity demanded - Old quantity demanded) / Old quantity demanded) * 100
In this case, the old quantity demanded is 100 sandwiches and the new quantity demanded is 80 sandwiches:
Percentage change in quantity demanded = ((80 - 100) / 100) * 100 = -20%
Next, let's calculate the percentage change in price:
Percentage change in price = ((New price - Old price) / Old price) * 100
In this case, the old price is $4 and the new price is $5:
Percentage change in price = ((5 - 4) / 4) * 100 = 25%
Now, let's substitute these values into the elasticity formula:
Elasticity = (-20% / 25%) = -0.8
Since the elasticity is less than 1 (in absolute value), but greater than 0, the sandwiches at the deli are considered to be inelastic. Thus, the correct answer is A) Inelastic.
4) To determine the demand elasticity using the total expenditures method, we need to look at the change in total expenditures (revenue) when the price changes.
Total expenditure = Price * Quantity
Let's calculate the total expenditure at the old price:
Total expenditure at the old price = $10.50 * 200 = $2,100
Now, let's calculate the total expenditure at the new price:
Total expenditure at the new price = $11.00 * 190 = $2,090
Since the total expenditure decreased from $2,100 to $2,090, indicating a decrease in revenue, we can infer that demand is inelastic. The correct answer is D) inelastic because revenue decreased by $10.
5) When comparing Coca-Cola to all cola-flavored products, we need to consider factors like taste and substitutes.
Coca-Cola has a distinct taste and branding, which may make it less substitutable compared to all cola-flavored products. On the other hand, all cola-flavored products include a broader range of options, including store brands, generic colas, and flavored sodas. These substitutes give consumers more flexibility in choosing alternative cola-flavored products.
Therefore, all cola-flavored products are more likely to be elastic due to the availability of substitutes. The correct answer is B) All cola flavored products because they have fewer substitutes.