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 find the elasticity of tires at the tire shop, we need to use the formula: elasticity = (% change in quantity demanded) / (% change in price)
First, let's calculate the percentage change in quantity demanded:
% change in quantity demanded = (new quantity demanded - old quantity demanded) / old quantity demanded
% change in quantity demanded = (46 - 50) / 50
% change in quantity demanded = -4 / 50
% change in quantity demanded = -0.08 or -8%
Next, let's calculate the percentage change in price:
% change in price = (new price - old price) / old price
% change in price = (85 - 75) / 75
% change in price = 10 / 75
% change in price = 0.1333 or 13.33%
Now, let's calculate the elasticity:
elasticity = -0.08 / 0.1333
elasticity ≈ -0.6
Since the absolute value of the elasticity is less than 1, we can conclude that the tires at the tire shop are inelastic. Therefore, the answer is A) Inelastic.
2) To determine which good is more likely to be elastic, we need to consider factors such as value, necessity, and substitutes.
Toothpaste is more likely to be elastic because it has many substitutes. If the price of toothpaste increases, consumers can easily switch to a different brand or type of toothpaste without a significant impact on their well-being. On the other hand, a gold necklace is less likely to be elastic because it is a luxury item and consumers may be less sensitive to price changes.
Therefore, the answer is D) Toothpaste because it has many substitutes.
3) Using the same formula for elasticity:
Elasticity = (% change in quantity demanded) / (% change in price)
% change in quantity demanded = (new quantity demanded - old quantity demanded) / old quantity demanded
% change in quantity demanded = (80 - 100) / 100
% change in quantity demanded = -20 / 100
% change in quantity demanded = -0.2 or -20%
% change in price = (new price - old price) / old price
% change in price = (5 - 4) / 4
% change in price = 1 / 4
% change in price = 0.25 or 25%
Elasticity = -0.2 / 0.25
Elasticity = -0.8
Since the absolute value of the elasticity is greater than 1, we can conclude that the sandwiches at the deli are elastic. Therefore, the answer is B) Elastic.
4) To determine the demand elasticity using the total expenditures method, we need to calculate the total revenue at both prices.
Total revenue = price x quantity demanded
At the old price of $10.50, the total revenue = $10.50 x 200 = $2,100
At the new price of $11.00, the total revenue = $11.00 x 190 = $2,090
We can see that the total revenue decreased from $2,100 to $2,090, indicating an inelastic demand. Therefore, the answer is C) inelastic because revenue decreased by $10.
5) To determine which good is more likely to be elastic, we need to consider the availability of substitutes.
Coca-Cola is more likely to be elastic because it has more substitutes. If the price of Coca-Cola increases, consumers can easily switch to other cola-flavored products such as Pepsi, RC Cola, or store-brand cola. All cola-flavored products have a wide range of alternatives, making them more substitutable.
Therefore, the answer is C) Coca-Cola because it has more substitutes.