Question 1

When demand is elastic,a decrease in price will cause
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue,but an increase in quantity demanded.
D) no change in total revenue,but a decrease in quantity demanded.

Accepted Answer

The answer of When demand is elastic,a decrease in price...

Question 2

Suppose that when the price of corn is $2 per bushel,farmers can sell 10 million bushels.When the price of corn is $3 per bushel,farmers can sell 8 million bushels.Which of the following statements is true?
A) The demand for corn is income inelastic,and so an increase in the price of corn will increase the total revenue of corn farmers.
B) The demand for corn is income elastic,and so an increase in the price of corn will increase the total revenue of corn farmers.
C) The demand for corn is price inelastic,and so an increase in the price of corn will increase the total revenue of corn farmers.
D) The demand for corn is price elastic,and so an increase in the price of corn will increase the total revenue of corn farmers.

Accepted Answer

If the price of corn increases from $2 to $3, the percentage change in price is 50%, while the percentage change in quantity demanded is only -20%, indicating that the demand for corn is price inelastic. As a result, an increase in the price of corn will lead to an increase in total revenue for corn farmers, since the increase in price will more than offset the decrease in quantity sold. Therefore, choice C is the correct answer.

Question 3

Suppose that 50 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 5 percent,the number of candy bars demanded falls to 48.Using the midpoint approach to calculate the price elasticity of demand,it follows that the
A) demand for candy bars in this price range is unit elastic.
B) price increase will decrease the total revenue of candy bar sellers.
C) price elasticity of demand for candy bars in this price range is about 1.22.
D) price elasticity of demand for candy bars in this price range is about 0.82.

Accepted Answer

The answer of Suppose that 50 candy bars are demanded...

Question 4

Consider airfares on flights between New York and Minneapolis.When the airfare is $250,the quantity demanded of tickets is 2,000 per week.When the airfare is $280,the quantity demanded of tickets is 1,700 per week.Using the midpoint method,
A) the price elasticity of demand is about 1.43,and an increase in the airfare will cause airlines' total revenue to decrease.
B) the price elasticity of demand is about 1.43,and an increase in the airfare will cause airlines' total revenue to increase.
C) the price elasticity of demand is about 0.70,and an increase in the airfare will cause airlines' total revenue to decrease.
D) the price elasticity of demand is about 0.70,and an increase in the airfare will cause airlines' total revenue to increase.

Accepted Answer

Using the midpoint method, the price elasticity of demand can be calculated as:
[(1700-2000)/((1700+2000)/2)] / [(280-250)/((280+250)/2)] = -0.86
Since the elasticity is greater than 1 in absolute value, it is considered elastic. Therefore, an increase in the airfare will cause a decrease in total revenue for airlines. This is because the increase in price will lead to a more than proportional decrease in quantity demanded, leading to a net decrease in revenue.

Question 5

When demand is perfectly inelastic,the demand curve will be
A) negatively sloped,because buyers decrease their purchases when the price rises.
B) vertical,because buyers purchase the same amount as before whenever the price rises or falls.
C) positively sloped,because buyers increase their purchases when price rises.
D) positively sloped,because buyers increase their total expenditures when price rises.

Accepted Answer

When demand is perfectly inelastic, the quantity demanded remains constant regardless of changes in price. This means that the demand curve will be a vertical line, indicating that buyers purchase the same amount at every price level.

Question 6

For a vertical demand curve,
A) slope is undefined,and price elasticity of demand is equal to 0.
B) slope is equal to 0,and price elasticity of demand is undefined.
C) slope and price elasticity of demand both are undefined.
D) slope and price elasticity of demand both are equal to 0.

Accepted Answer

A vertical demand curve implies that consumers are completely unresponsive to changes in price (i.e. they will always buy the same amount regardless of price), resulting in a slope of undefined or "infinite". The price elasticity of demand formula involves dividing the percentage change in quantity by the percentage change in price, but if the percentage change in price is 0 due to the vertical demand curve, the result is 0 in the denominator and the price elasticity of demand is also undefined or "infinite".

Question 7

When demand is inelastic,an increase in price will cause
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue,but an increase in quantity demanded.
D) no change in total revenue,but a decrease in quantity demanded.

Accepted Answer

The answer of When demand is inelastic,an increase in price...

Question 8

Suppose that when the price of beer is $2 per bottle,firms can sell 4 million bottles.When the price of beer is $3 per bottle,firms can sell 2 million bottles.Which of the following statements is true?
A) The demand for beer is income inelastic,and so an increase in the price of beer will increase the total revenue of beer producers.
B) The demand for beer is income elastic,and so an increase in the price of beer will increase the total revenue of beer producers.
C) The demand for beer is price inelastic,and so an increase in the price of beer will increase the total revenue of beer producers.
D) The demand for beer is price elastic,and so an increase in the price of beer will increase the total revenue of beer producers.

Accepted Answer

The fact that the quantity demanded of beer falls significantly from 4 million to 2 million when the price rises from $2 to $3 per bottle indicates that the demand for beer is price elastic. When demand is elastic, an increase in price leads to a decrease in total revenue for producers, as the decrease in quantity demanded outweighs the increase in price. Therefore, an increase in the price of beer, given the price elasticity of demand for beer, is likely to reduce total revenue for beer producers.

Question 9

In the case of perfectly inelastic demand,
A) the change in quantity demanded equals the change in price.
B) the percentage change in quantity demanded equals the percentage change in price.
C) infinitely-large changes in quantity demanded result from very small changes in the price.
D) quantity demanded stays the same whenever price changes.

Accepted Answer

In perfectly inelastic demand, the quantity demanded of a good or service remains constant regardless of any changes in its price. This means that even if the price increases or decreases, consumers will still demand the same quantity. Therefore, the answer is D - quantity demanded stays the same whenever price changes.

Question 10

In which of these instances is demand said to be perfectly inelastic?
A) An increase in price of 2% causes a decrease in quantity demanded of 2%.
B) A decrease in price of 2% causes an increase in quantity demanded of 0%.
C) A decrease in price of 2% causes a decrease in total revenue of 0%.
D) The demand curve is horizontal.

Accepted Answer

In perfectly inelastic demand, the quantity demanded does not change regardless of price changes, which is represented by a 0% change in quantity demanded.

Question 11

Alice says that she would buy one banana split a day regardless of the price.If she is telling the truth,
A) Alice's demand for banana splits is perfectly inelastic.
B) Alice's price elasticity of demand for banana splits is 1.
C) Alice's income elasticity of demand for banana splits is 0.
D) None of the above answers is correct.

Accepted Answer

If Alice would buy a banana split every day regardless of the price, her demand for banana splits is not affected by changes in price. This means her demand is perfectly inelastic: the price elasticity of demand is zero.

Question 12

Suppose that 500 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 10 percent,the number of candy bars demanded falls to 480.Using the midpoint approach to calculate the price elasticity of demand,it follows that the
A) demand for candy bars in this price range is unit elastic.
B) price increase will decrease the total revenue of candy bar sellers.
C) price elasticity of demand for candy bars in this price range is about 0.41.
D) price elasticity of demand for candy bars in this price range is about 0.24.

Accepted Answer

The midpoint approach formula for calculating price elasticity of demand is:
% change in quantity demanded = [(Q2 - Q1) / ((Q1 + Q2) / 2)] x 100%
% change in price = [(P2 - P1) / ((P1 + P2) / 2)] x 100%

Using the values given:
% change in quantity demanded = [480 - 500 / ((500 + 480) / 2)] x 100% = -4.17%
% change in price = [((1 + 0.10)P1 - P1) / ((1 + 0.10)P1 + P1) / 2] x 100% = 9.09%

Price elasticity of demand = % change in quantity demanded / % change in price
Price elasticity of demand = -4.17% / 9.09% = -0.459

Taking the absolute value, the price elasticity of demand for candy bars in this price range is about 0.41. Therefore, choice C is the correct answer. Note that choice A is incorrect because the price elasticity of demand is less than 1, not equal to 1. Choice B is also incorrect because we cannot make a conclusion about total revenue without knowing the relationship between price and quantity demanded (i.e. whether demand is elastic or inelastic). Choice D is incorrect because it is the inverse of the correct answer (the formula for price elasticity of demand is % change in quantity demanded / % change in price, not % change in price / % change in quantity demanded).

Question 13

A perfectly inelastic demand implies that buyers
A) decrease their purchases when the price rises.
B) purchase the same amount as before when the price rises or falls.
C) increase their purchases only slightly when the price falls.
D) respond substantially to an increase in price.

Accepted Answer

The answer of A perfectly inelastic demand implies that buyers
A)...

Question 14

When the price of good A is $50,the quantity demanded of good A is 500 units.When the price of good A rises to $70,the quantity demanded of good A falls to 400 units.Using the midpoint method,
A) the price elasticity of demand for good A is 1.50,and an increase in price will result in an increase in total revenue for good A.
B) the price elasticity of demand for good A is 1.50,and an increase in price will result in a decrease in total revenue for good A.
C) the price elasticity of demand for good A is 0.67,and an increase in price will result in an increase in total revenue for good A.
D) the price elasticity of demand for good A is 0.67,and an increase in price will result in a decrease in total revenue for good A.

Accepted Answer

The answer of When the price of good A is...

Question 15

Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves of bread.This month it earned $300 in total revenue when it sold 60 loaves of bread.The price elasticity of demand for Barb's bread is
A) 0.27.
B) 0.58.
C) 1.25.
D) 1.71.

Accepted Answer

The answer of Barb's Bakery earned $200 in total revenue...

Question 16

Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9.The price elasticity of demand for Harry's Haircuts is
A) 0.567.
B) 0.700.
C) 1.429.
D) 2.200.

Accepted Answer

Using the midpoint formula: 
% change in price = [(9-5)/((9+5)/2)]*100% = 44.44%
% change in quantity = [(1800-1500)/((1800+1500)/2)]*100% = 21.43%
Price elasticity of demand = %change in quantity demanded / % change in price 
= 21.43% / 44.44%
= 0.48 (approx.)
The price elasticity of demand is less than 1, indicating that the demand for haircuts at Harry's Barber Shop is relatively inelastic. Therefore, the correct choice is B.

Question 17

For a horizontal demand curve,
A) slope is undefined,and price elasticity of demand is equal to 0.
B) slope is equal to 0,and price elasticity of demand is undefined.
C) slope and price elasticity of demand both are undefined.
D) slope and price elasticity of demand both are equal to 0.

Accepted Answer

A horizontal demand curve means that no matter what the price is, the quantity demanded will remain the same. Therefore, the slope of the demand curve is 0, as there will be no change in quantity demanded with a change in price. However, the price elasticity of demand cannot be undefined, as it is calculated as the percentage change in quantity divided by the percentage change in price. Therefore, the price elasticity of demand for a horizontal demand curve is equal to 0, indicating perfectly inelastic demand.

Question 18

When demand is inelastic,a decrease in price will cause
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue,but an increase in quantity demanded.
D) no change in total revenue,but a decrease in quantity demanded.

Accepted Answer

When demand is inelastic, a decrease in price will result in a proportionally smaller increase in quantity demanded, and therefore a decrease in total revenue. This is because the increase in quantity demanded is not enough to make up for the decrease in price, and customers are not very sensitive to price changes.

Question 19

When demand is perfectly inelastic,the price elasticity of demand
A) is zero,and the demand curve is vertical.
B) is zero,and the demand curve is horizontal.
C) approaches infinity,and the demand curve is vertical.
D) approaches infinity,and the demand curve is horizontal.

Accepted Answer

When demand is perfectly inelastic, the quantity demanded does not change with a change in price. Therefore, the price elasticity of demand is zero. This is reflected in the demand curve, which is vertical because the quantity demanded remains constant regardless of price changes.

Question 20

When the local used bookstore prices economics books at $15.00 each,it generally sells 70 books per month.If it lowers the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about
A) 2.91,and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
B) 2.91,and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.
C) 0.34,and an increase in price from $7.00 to $15.00 results in an increase in total revenue.
D) 0.34,and an increase in price from $7.00 to $15.00 results in a decrease in total revenue.

Accepted Answer

The answer of When the local used bookstore prices economics...

Quiz 5: Elasticity and Its Application

When demand is elastic,a decrease in price will cause

Suppose that when the price of corn is $2 per bushel,farmers can sell 10 million bushels.When the price of corn is $3 per bushel,farmers can sell 8 million bushels.Which of the following statements is true?

Suppose that 50 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 5 percent,the number of candy bars demanded falls to 48.Using the midpoint approach to calculate the price elasticity of demand,it follows that the

Consider airfares on flights between New York and Minneapolis.When the airfare is $250,the quantity demanded of tickets is 2,000 per week.When the airfare is $280,the quantity demanded of tickets is 1,700 per week.Using the midpoint method,

When demand is perfectly inelastic,the demand curve will be

For a vertical demand curve,

When demand is inelastic,an increase in price will cause

Suppose that when the price of beer is $2 per bottle,firms can sell 4 million bottles.When the price of beer is $3 per bottle,firms can sell 2 million bottles.Which of the following statements is true?

In the case of perfectly inelastic demand,

In which of these instances is demand said to be perfectly inelastic?

Alice says that she would buy one banana split a day regardless of the price.If she is telling the truth,

Suppose that 500 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 10 percent,the number of candy bars demanded falls to 480.Using the midpoint approach to calculate the price elasticity of demand,it follows that the

A perfectly inelastic demand implies that buyers

When the price of good A is $50,the quantity demanded of good A is 500 units.When the price of good A rises to $70,the quantity demanded of good A falls to 400 units.Using the midpoint method,

Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves of bread.This month it earned $300 in total revenue when it sold 60 loaves of bread.The price elasticity of demand for Barb's bread is

Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9.The price elasticity of demand for Harry's Haircuts is

For a horizontal demand curve,

When demand is inelastic,a decrease in price will cause

When demand is perfectly inelastic,the price elasticity of demand

When the local used bookstore prices economics books at $15.00 each,it generally sells 70 books per month.If it lowers the price to $7.00,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about