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Elasticity Graphs
Use the graph below to answer questions 1 &2
1. Which of the demand curves shown in this graph is perfectly inelastic?
A. D1
B. D2
C. D3
D. D4
E. D5
2. Which of the demand curves shown in this graph is perfectly elastic?
A. D1
B. D2
C. D3
D. D4
E. D5
3. If the price elasticity of demand for point 2 equals 1, what must also be true?
A. The value of price elasticity at point 1 is less than 1
B. Point 3 also has a price elasticity of demand equal to 1
C. The value of price elasticity at point 3 is inelastic
D. Point 3 is perfectly inelastic
E. Point 1 is perfectly inelastic
Price Elasticity of Demand Questions
4. Gas prices rose by 12%, percent following a hurricane in the Gulf of Mexico. As a result, the amount of gas purchased
in the week fell by 3%, percent following the price increase.
What is the price elasticity of demand for gas in the week following the price increase?
A. 0.25
B. -0.75
C. 4
D. 2.5
E. 0.5
Reason: A price elasticity of demand of 0.25 indicates that for every 1% increase in price, the quantity demanded of gas
decreases 0.25%. Remember: the convention in economics is to take the absolute value of the price elasticity of demand,
so this will always be a positive value. The price elasticity of demand is calculated with this formula: PED= %change in
quantity demanded / %change in price
5. The price elasticity of demand for a brand of breakfast cereal is 5.
5. Based on this elasticity, what will be the percentage change in the quantity of breakfast cereal bought as a result of
