Page 507 - Krugmans Economics for AP Text Book_Neat

5. If a 2% change in the price of a good leads to a 10% change in a. 0.02
the quantity demanded of a good, what is the value of price b. 0.2
elasticity of demand? c. 5
d. 10
e. 20

Tackle the Test: Free-Response Questions
1. a. Define the price elasticity of demand and provide the 2. Assume the price of an inferior good increases.
formula for calculating the price elasticity of demand using a. In what direction will the substitution effect change the Section 9 Behind the Demand Curve: Consumer Choice
the midpoint method. quantity demanded? Explain.
b. Refer to the table provided. Using the midpoint method, b. In what direction will the income effect change the
calculate the price elasticity of demand for good X. quantity demanded? Explain.
c. Based on your calculation of price elasticity of demand in c. Given that the demand curve for the good slopes
part b, if price increases by 10%, in what direction and by downward, what is true of the relative sizes of the income
what percentage will quantity demanded change? and substitution effects for the inferior good? Explain.
Good X
Price Quantity demanded
$2 800
$4 500

Answer (5 points)
1 point: The price elasticity of demand measures the responsiveness of the
quantity demanded to price changes.
1 point: (Change in quantity demanded/average quantity demanded)/(change in
price/average price)
1 point: 0.69
1 point: Decrease
1 point: 6.9%

module 46 Income Effects, Substitution Effects, and Elasticity 465