Elasticity: how much buyers respond to a price change

Grade 12 Social Studies Worksheet - Building Confidence

Circle the best answer.

1. Read this first

   Use this

   Four goods after a 10% price rise (example figures, made up for practice). Columns: Good, Price before, Price after, Sold before, Sold after. Monthly bus pass, $40, $44, 1,000, 960; Concert ticket, $50, $55, 400, 300; Notebook, $5.00, $5.50, 2,000, 1,900; Fast-food combo, $8.00, $8.80, 500, 400. Elasticity is the percent change in quantity demanded divided by the percent change in price, each measured from the starting value. Above 1 is elastic; below 1 is inelastic.

2. 1.

   Ari ranks the four goods by how buyers react to price. Which good has the least elastic demand?

   • The concert ticket: it lost 100 buyers, like the notebook, so the two goods have matching demand.
   • The monthly bus pass: sales fell 4% for a 10% price rise, an elasticity of 0.4.
   • The fast-food combo: 400 of its 500 buyers stayed, so most buyers ignore changes in its price.
   • The notebook: its price rose by just 50 cents, the smallest change in dollars, so buyers barely notice it.
3. 2.

   Bo watches the organizer raise the concert ticket price from $50 to $55. What happens to revenue, and why?

   • Revenue rises from $20,000 to $22,000, because each ticket now sells for $5 more than before.
   • Revenue falls from $20,000 to $16,500, because demand is inelastic, at 0.4 on the table.
   • Revenue stays near $20,000, since the 10% price rise cancels against the 100 tickets lost.
   • Revenue falls from $20,000 to $16,500, because demand is elastic, at 2.5.
4. 3.

   Jun writes one claim about notebooks from the table. Which claim does the table support best?

   • Notebook revenue fell, because 100 fewer notebooks were sold after the price went up to $5.50.
   • Notebook demand is perfectly inelastic, since 1,900 notebooks were still sold at the higher price.
   • Notebook sellers earned more profit, because their revenue rose after the price rise to $5.50.
   • Notebook revenue rose from $10,000 to $10,450, because sales fell 5% against a 10% price rise.
5. 4.

   Kira finds an elasticity of 2.0 for the fast-food combo. What does that value mean?

   • The quantity demanded falls by 2 units for each $1 the price rises, a steady loss of buyers.
   • A 2% rise in the price cuts the quantity demanded by about 1%, as buyers respond a little.
   • Buyers will pay up to twice the current price of the combo before they stop buying it.
   • A 1% rise in the price cuts the quantity demanded by about 2%.
6. 5.

   A bus agency wants more revenue from monthly passes. Using the table, which price change should Luz suggest?

   • Raise the fare: quantity falls by a smaller percent than the price rises, so revenue goes up.
   • Keep the fare: with 960 riders still buying passes, the agency's revenue cannot change.
   • Cut the fare: a lower price brings so many new riders that revenue goes up for the agency.
   • Raise the fare, but revenue falls because fewer than 1,000 riders buy the pass after the rise.
7. 6.

   Milo asks which two goods lose revenue after their 10% price rises. Which pair does the table show?

   • The concert ticket and the notebook, whose sales both fell by exactly 100 units after the rise.
   • The concert ticket and the fast-food combo, whose sales fell by more than 10%.
   • The bus pass and the concert ticket, which have the two highest prices in the whole table.
   • The bus pass and the notebook, whose sales fell by less than the price rose, but still fell.

8. Card

   Two demand curves (made up for practice). Curve A is a vertical line for a textbook that a course requires: students buy the same quantity at any price they can afford. Curve B is a flat, horizontal line for one farm's wheat sold at the market price: if the farm asks a cent more, every buyer goes elsewhere.

9. 7.

   Which description of the two curves does Noah find correct?

   • Both curves are unit elastic, because each one shows a single price and a single quantity.
   • Curve A is perfectly inelastic and curve B is too, since neither seller can choose the price.
   • Curve A is perfectly inelastic, an elasticity of 0; curve B is perfectly elastic, a huge elasticity.
   • Curve A is perfectly elastic and curve B is perfectly inelastic, because steep lines mean big responses.

10. Use this

    Gasoline after a lasting 10% price rise (example figures, made up for practice). Columns: Time after the rise, Change in quantity demanded. One week, -2%; One year, -5%; Five years, -9%. Elasticity is the percent change in quantity demanded divided by the percent change in price. Above 1 is elastic; below 1 is inelastic.

11. 8.

    A city wants less gasoline use. Ren uses the table for a lasting 10% rise. What should Ren expect in the first week?

    • A small drop of about 2%, so a price rise alone cuts gasoline use slowly at first.
    • A drop of about 9%, the full effect of the 10% price rise, since people react at once.
    • No drop, since gasoline has no substitutes and buyers cannot change their trips.
    • A drop of about 10%, because quantity demanded falls by the same percent as the price rises.

12. Card

    Two price rises (made up for practice). A 10% rise in the price of a pencil costs a buyer 20 cents more. A 10% rise in the price of a used car costs a buyer $1,200 more.

13. 9.

    Which determinant of elasticity does Tala see in the card, and which way does it work?

    • Share of the budget: buyers react more when a good takes a large part of their spending, as with the car.
    • Time to adjust: buyers react more to expensive goods because it takes longer to shop for them.
    • Share of the budget: buyers react more to cheap goods, since a pencil is bought in large numbers.
    • Necessity: a used car is a need, so demand for it is inelastic and a 10% rise changes little.

14. Card

    a student's note (made up for practice). "Elastic demand means buyers do not respond to price changes, so a price rise always raises revenue."

15. 10.

    Zee edits the note so that it is correct. Which edit makes the note correct?

    • Elastic demand means buyers do not respond, but a price rise lowers revenue in the same way.
    • Elastic demand means buyers respond a lot, so a price rise still raises the revenue as before.
    • Inelastic demand means buyers respond a lot, so a price rise lowers the revenue of sellers.
    • Elastic demand means buyers respond a lot, so a price rise lowers revenue.