Question 1

Using the midpoints of price and quantity to compute percentage changes between points a and b
A) gives the most accurate measure of elasticity.
B) measures the average elasticity between points a and b.
C) measures the marginal elasticity between points a and b.
D) measures the change in total revenue.

Accepted Answer

Using the midpoints to compute percentage changes between two points measures the average elasticity between those points, providing a more balanced view of elasticity over the range.

Question 2

As the price of bananas fell from $0.60 to $0.40 per pound, the quantity demanded rose from 300 pounds of bananas consumed to 500 pounds of bananas consumed. The price elasticity of demand (using the midpoint method) is
A) 0.80.
B) 1.00.
C) 1.25.
D) 1.50.

Accepted Answer

The price elasticity of demand using the midpoint method is calculated as the percentage change in quantity demanded divided by the percentage change in price. Using the midpoint method, the formula is: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)], where Q1 and Q2 are the initial and final quantities demanded, and P1 and P2 are the initial and final prices. Plugging in the given values: [(500 - 300) / ((500 + 300) / 2)] / [($0.40 - $0.60) / (($0.40 + $0.60) / 2)] = (200 / 400) / (-0.20 / 0.50) = 0.5 / -0.4 = -1.25. The negative sign indicates the direction of the change (price down, quantity up), but elasticity is usually considered in absolute terms, so the answer is 1.25.

Question 3

If the price falls from $3 to $2 and the quantity demanded rises from 200 to 400 units, the price elasticity of demand using the midpoint method is
A) 2.00.
B) 1.67.
C) 0.67.
D) 0.33.

Accepted Answer

The answer of If the price falls from $3 to...

Question 4

If the price rises from $2 to $3 and the quantity demanded falls from 500 to 300 units, the price elasticity of demand using the midpoint method is
A) 1.25.
B) 0.80.
C) 1.50.
D) 0.08.

Accepted Answer

The midpoint method formula for price elasticity of demand is [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the values: [(300 - 500) / (300 + 500)/2] / [(3 - 2) / (3 + 2)/2] = (-200 / 400) / (1 / 2.5) = -0.5 / 0.4 = -1.25. The absolute value is 1.25.

Question 5

A product's price changes from $2 to $6 and its quantity demanded changes from 10 to 4 units. This is an example of price
A) inelastic demand.
B) elastic demand.
C) unitary elastic demand.
D) inelastic supply.

Accepted Answer

The percentage change in quantity demanded is less than the percentage change in price, indicating inelastic demand.

Question 6

(Figure) The figure shows two demand curves for the same product for two different periods. When the price falls from $10 to $5, the price elasticity of demand using the midpoint method will be _____ for the short run and _____for the long run.

A) 0.33; 0.6
B) 3.03; 0.6
C) 0.33; 1.67
D) 3.03; 1.67

Accepted Answer

The answer of (Figure) The figure shows two demand curves...

Question 7

(Figure) The figure shows two demand curves for two different periods for the same product. Based on the information in the graph, which statement is TRUE?

A) The flatter long-run demand curve implies that the price elasticity of demand is smaller compared to the short run.
B) The flatter long-run demand curve implies that the price elasticity of demand is greater compared to the short run.
C) The steeper short-run demand curve implies that the price elasticity of demand is equal to the long run.
D) The steeper short-run demand curve implies that the price elasticity of demand is larger compared to the long run.

Accepted Answer

The answer of (Figure) The figure shows two demand curves...

Question 8

(Figure) The figure shows two demand curves for two different periods for the same product. Based on the information in the graph, which statement is TRUE?

A) The flatter long-run demand curve implies that consumers have more time to adjust their behavior and find substitute goods.
B) The flatter long-run demand curve implies that more consumers find the product a necessity in the long run compared to the short run.
C) The steeper short-run demand curve implies that consumers spend a larger share of their income in the short run compared to the long run.
D) The steeper short-run demand curve implies consumers are more price sensitive in the short run compared to the long run.

Accepted Answer

The answer of (Figure) The figure shows two demand curves...

Question 9

The current equilibrium price and quantity in the market for walnuts are $5 per pound with 10,000 pounds supplied. Supermarkets are expecting to see the price fall to $4 per pound due to an unusually large crop of walnuts. If the price elasticity of demand is 1.8, what is the new quantity demand for walnuts?
A) QD = 30,000
B) QD = 10,000
C) QD = 15,000
D) QD = 20,000

Accepted Answer

The answer of The current equilibrium price and quantity in...

Question 10

The current equilibrium price and quantity in the market for walnuts are $5 per pound with 10,000 pounds supplied. Supermarkets are expecting to see sales rise to 15,000 pounds due to an unusually large crop of walnuts. If the price elasticity of demand is 1.8, what is the new price per pound of walnuts?
A) $7
B) $5
C) $6
D) $4

Accepted Answer

The price elasticity of demand formula is: % Change in Quantity Demanded / % Change in Price. Given the elasticity is 1.8 and the quantity demanded increases from 10,000 to 15,000 pounds (a 50% increase), we solve for the % Change in Price. Rearranging the formula: % Change in Price = % Change in Quantity Demanded / Elasticity = 50% / 1.8 = 27.78% decrease in price. A 27.78% decrease from the original price of $5 leads to a new price of approximately $4 per pound.

Question 11

(Figure) The figure shows a basic demand curve with four points labeled A through
A) 
 $\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Price } \
\text { Change }
\end{array} & E D \
\hline A \text { to } B & 2.33 \
\hline B \text { to } C & 2.33 \
\hline C \text { to } D & 2.33 \
\hline
\end{array}$
B) 
 $\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Price } \
\text { Change }
\end{array} & E D \
\hline A \text { to } B & 2.33 \
\hline B \text { to } C & 1 \
\hline C \text { to } D & 0.43 \
\hline
\end{array}$
C) 
 $\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Price } \
\text { Change }
\end{array} & E D \
\hline A \text { to } B & 0.43 \
\hline B \text { to } C & 1 \
\hline C \text { to } D & 2.33 \
\hline
\end{array}$
D) 
 $\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Price } \
\text { Change }
\end{array} & E D \
\hline A \text { to } B & 1 \
\hline B \text { to } C & 2.33 \
\hline C \text { to } D & 0.43 \
\hline
\end{array}$

Accepted Answer

The correct choice reflects a demand curve where the price elasticity of demand (ED) decreases as we move down the curve from A to D, indicating that the sensitivity to price changes decreases as price decreases and quantity demanded increases. This is consistent with the typical behavior of a demand curve, where the upper portions are more elastic and the lower portions are less elastic.

Question 12

As the price of bananas fell from $0.60 to $0.40 a pound, the quantity demanded rose from 300 pounds of bananas consumed to 500 pounds of bananas consumed. In this example, demand for bananas is
A) inelastic.
B) unitary elastic.
C) elastic.
D) perfectly elastic.

Accepted Answer

The demand for bananas is elastic because the percentage change in quantity demanded is greater than the percentage change in price, indicating a high sensitivity to price changes.

Question 13

A gas station owner in a large city learned in his microeconomics class that buyers are relatively unresponsive to changes in the price of gasoline. If that assumption is correct, when he increases the price of gas at his station
A) total revenue will increase.
B) total revenue will decrease.
C) total revenue will not change.
D) the sale of complementary goods at his station will increase.

Accepted Answer

When buyers are relatively unresponsive to changes in the price of gasoline, it means the demand for gasoline is inelastic. In such cases, an increase in price leads to a less than proportionate decrease in quantity demanded, resulting in an increase in total revenue.

Question 14

If the price of a product with inelastic demand is increased, the _____ in revenue from selling fewer units.
A) gain in revenue from the higher price is greater than the loss
B) gain in revenue from the higher price is greater than the gain
C) loss in revenue from the higher price is smaller than the loss
D) gain in revenue from the higher price is smaller than the loss

Accepted Answer

For products with inelastic demand, when prices increase, the percentage decrease in quantity demanded is less than the percentage increase in price. This means that the total revenue (price x quantity sold) increases because the gain in revenue from the higher price per unit outweighs the loss in revenue from selling fewer units.

Question 15

A firm increases its price for a good and total revenues increase. From this, we can conclude that its demand is
A) price elastic.
B) price inelastic.
C) unitary elastic.
D) perfectly elastic.

Accepted Answer

When a firm increases its price and total revenues increase, it indicates that the demand for the good is price inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price, leading to an increase in total revenue despite the higher price.

Question 16

Assume the price of a good is $1 and total revenue is $200. If the price of the same good increases to $2 and total revenue increases to $400, you know that the demand for the product is
A) elastic.
B) inelastic.
C) unitary.
D) perfectly inelastic.

Accepted Answer

The answer of Assume the price of a good is...

Question 17

A poultry rancher discovered what when she increased the price of organic eggs from $0.75 to $1.00 per dozen, the sales of her eggs fell from 300 dozen per week to 200 dozen per week. Based on the midpoint method, if she wants to increase her total revenue from egg sales, she should
A) raise the price of eggs even more.
B) hold the price constant at $1.00.
C) reduce the price of eggs back to $0.75.
D) take up dairy farming.

Accepted Answer

The midpoint method calculates elasticity, showing demand is elastic (greater than 1). Lowering the price increases total revenue.

Question 18

The general manager of the local hockey team hires you to help maximize the team's total revenue. She explains that most costs are constant because the entire staff must always be available in case the arena reaches its maximum capacity. If your task is to maximize total revenue from ticket sales, then your advice to the manager would be to set the ticket price
A) in the inelastic region of ticket demand in order to increase total revenue.
B) in the elastic region of ticket demand in order to increase total revenue.
C) as close as possible to the point where the price elasticity of demand equals 1.
D) very low to make sure that the arena is always full.

Accepted Answer

Setting the ticket price where the price elasticity of demand equals 1 maximizes total revenue, as this is the point where any change in price does not affect total revenue.

Question 19

Other things held constant, when demand is price inelastic, an increase in
A) the price leads to lower total revenue.
B) total revenue means that quality will improve.
C) total revenue leads to a reduction in price.
D) price leads to greater total revenue.

Accepted Answer

When demand is price inelastic, an increase in price leads to a smaller percentage decrease in quantity demanded, resulting in greater total revenue. This is because consumers are less sensitive to price changes, and the decrease in quantity sold is not enough to offset the increase in price.

Question 20

If a firm sells a product that has a perfectly inelastic demand curve, then if price doubles, it can be expected that
A) total revenue will fall by one-half.
B) total revenue will double.
C) total revenue will remain unchanged.
D) supply will decrease.

Accepted Answer

When demand is perfectly inelastic, quantity demanded does not change as price changes. Therefore, if the price doubles, total revenue (price times quantity) also doubles because the quantity sold remains the same.

Quiz 5: Elasticity

Using the midpoints of price and quantity to compute percentage changes between points a and b

As the price of bananas fell from $0.60 to $0.40 per pound, the quantity demanded rose from 300 pounds of bananas consumed to 500 pounds of bananas consumed. The price elasticity of demand (using the midpoint method) is

If the price falls from $3 to $2 and the quantity demanded rises from 200 to 400 units, the price elasticity of demand using the midpoint method is

If the price rises from $2 to $3 and the quantity demanded falls from 500 to 300 units, the price elasticity of demand using the midpoint method is

A product's price changes from $2 to $6 and its quantity demanded changes from 10 to 4 units. This is an example of price

(Figure) The figure shows two demand curves for the same product for two different periods. When the price falls from $10 to $5, the price elasticity of demand using the midpoint method will be _ for the short run and _for the long run.

(Figure) The figure shows two demand curves for two different periods for the same product. Based on the information in the graph, which statement is TRUE?

(Figure) The figure shows two demand curves for two different periods for the same product. Based on the information in the graph, which statement is TRUE?

(Figure) The figure shows a basic demand curve with four points labeled A through

As the price of bananas fell from $0.60 to $0.40 a pound, the quantity demanded rose from 300 pounds of bananas consumed to 500 pounds of bananas consumed. In this example, demand for bananas is

A gas station owner in a large city learned in his microeconomics class that buyers are relatively unresponsive to changes in the price of gasoline. If that assumption is correct, when he increases the price of gas at his station

If the price of a product with inelastic demand is increased, the _____ in revenue from selling fewer units.

A firm increases its price for a good and total revenues increase. From this, we can conclude that its demand is

Assume the price of a good is $1 and total revenue is $200. If the price of the same good increases to $2 and total revenue increases to $400, you know that the demand for the product is

A poultry rancher discovered what when she increased the price of organic eggs from $0.75 to $1.00 per dozen, the sales of her eggs fell from 300 dozen per week to 200 dozen per week. Based on the midpoint method, if she wants to increase her total revenue from egg sales, she should

Other things held constant, when demand is price inelastic, an increase in

If a firm sells a product that has a perfectly inelastic demand curve, then if price doubles, it can be expected that