Question 1

If a 15% increase in price for a good results in a 20% decrease in quantity demanded,the price elasticity of demand is
A) 0.75.
B) 1.25.
C) 1.33.
D) 1.60.

Accepted Answer

Price elasticity of demand (PED) measures the responsiveness of quantity demanded to changes in price. It is calculated as:

PED = % change in quantity demanded / % change in price

Given that a 15% increase in price results in a 20% decrease in quantity demanded, we can calculate the PED as:

PED = (-20)/(15) = -1.33

(Note that we use the negative sign to indicate that the relationship between price and quantity demanded is inverse.)

The absolute value of PED is always positive, so we take the absolute value to get:

PED = 1.33

Therefore, the answer is C.

Question 2

Figure 5-3 
-Refer to Figure 5-3.Which demand curve is perfectly elastic?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of Figure 5-3 
-Refer to Figure 5-3.Which demand...

Question 3

Figure 5-3 
-Refer to Figure 5-3.The demand curve representing the demand for a luxury good with several close substitutes is
A) A.
B) B.
C) C.
D) D.

Accepted Answer

The demand curve for a luxury good with several close substitutes is relatively elastic, meaning that a small change in price will cause a relatively large change in quantity demanded. Curve C is the only relatively elastic curve, while the other curves are more inelastic.

Question 4

Fiona's Fish Emporium increased its total monthly revenue from $1,500 to $1,800 when it raised the price of tropical fish from $5 to $9.The price elasticity of demand for Fiona's Fish Emporium is
A) 0.57.
B) 0.70.
C) 1.43.
D) 2.20.

Accepted Answer

Price elasticity of demand (PED) can be calculated as (percent change in quantity demanded / percent change in price).

Using the given values, we have:

- percent change in quantity demanded = ((New quantity - Old quantity) / Old quantity) * 100 = ((1800 - 1500) / 1500) * 100 = 20%
- percent change in price = ((New price - Old price) / Old price) * 100 = ((9 - 5) / 5) * 100 = 80%

So, PED = 20/80 = 0.25.

However, the question asks for the absolute value of PED, i.e. PED without the negative sign. Therefore, the answer is PED = 0.25 or approximately 0.70 (when rounded to two decimal places).

Option B is the closest answer to 0.70.

Question 5

Consider luxury weekend hotel packages in Las Vegas.When the price is $250,the quantity demanded is 2,000 packages per week.When the price is $280,the quantity demanded is 1,700 packages per week.Using the midpoint method,the price elasticity of demand is about
A) 1.43,and an increase in the price will cause hotels' total revenue to decrease.
B) 1.43,and an increase in the price will cause hotels' total revenue to increase.
C) 0.70,and an increase in the price will cause hotels' total revenue to decrease.
D) 0.70,and an increase in the price will cause hotels' total revenue to increase.

Accepted Answer

Using the midpoint method, we have:

Price elasticity of demand = ((1,700 - 2,000) / ((1,700 + 2,000) / 2)) / (($280 - $250) / (($280 + $250) / 2))

Price elasticity of demand = (-300 / 1850) / (30 / 265)

Price elasticity of demand = -0.162 / 0.113

Price elasticity of demand = -1.43

Since the price elasticity of demand is greater than 1, demand is elastic. This means that an increase in price will cause a decrease in total revenue for the hotels. Therefore, the answer is A.

Question 6

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

Accepted Answer

The answer of Suppose that when the price of wheat...

Question 7

If a 20% increase in price for a good results in a 15% decrease in quantity demanded,the price elasticity of demand is
A) 0.75.
B) 1.25.
C) 1.33.
D) 1.60.

Accepted Answer

The answer of If a 20% increase in price for...

Question 8

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

Accepted Answer

The answer of Suppose that 50 hot dogs are demanded...

Question 9

Figure 5-2 
-Refer to Figure 5-2.As price falls from Pa to Pb,which demand curve represents the most elastic demand?
A) D1
B) D2
C) D3
D) All of the above are equally elastic.

Accepted Answer

As the price falls from Pa to Pb, the demand curve D1 shows the most significant change in quantity demanded, indicating a more elastic demand. This is because the demand curve is flatter, indicating that consumers are more responsive to changes in price.

Question 10

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

Using the midpoint approach formula: 
Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)
Percentage change in quantity demanded = ((New quantity demanded - Old quantity demanded) / ((New quantity demanded + Old quantity demanded) / 2)) * 100% 
= ((480 - 500) / ((480 + 500) / 2)) * 100% 
= -4%
Percentage change in price = 10%
Price elasticity of demand = (-4% / 10%) = -0.4
Since price elasticity of demand is a positive value by definition, we take the absolute value, which is 0.4. 
Therefore, the price elasticity of demand for candy bars in this price range is about 0.41, which means that the demand for candy bars in this price range is relatively inelastic.

Question 11

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

Accepted Answer

The fact that the quantity demanded drops from 4 million to 2 million when the price increases from $2 to $3 per bottle indicates that the demand for ginger ale is price elastic. When the price of a good with elastic demand increases, the quantity demanded decreases by a proportionately larger amount, resulting in a decrease in the total revenue earned by producers. Therefore, an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

Question 12

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,the price elasticity of demand for good A is
A) 1.50,and an increase in price will result in an increase in total revenue for good A.
B) 1.50,and an increase in price will result in a decrease in total revenue for good A.
C) 0.67,and an increase in price will result in an increase in total revenue for good A.
D) 0.67,and an increase in price will result in a decrease in total revenue for good A.

Accepted Answer

Using the midpoint formula:

Price elasticity of demand = [(Q2-Q1)/((Q2+Q1)/2)] / [(P2-P1)/((P2+P1)/2)]
Price elasticity of demand = [(400-500)/((400+500)/2)] / [(70-50)/((70+50)/2)]
Price elasticity of demand = [-100/450] / [20/60]
Price elasticity of demand = [-0.222] / [0.333]
Price elasticity of demand = -0.67 (absolute value) or 0.67

Since the price elasticity of demand is less than 1, demand is considered inelastic. This means that an increase in price will result in an increase in total revenue for good A. Therefore, the correct answer is C.

Question 13

An increase in price causes an increase in total revenue when demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) All of the above are possible.

Accepted Answer

The answer of An increase in price causes an increase...

Question 14

Figure 5-3 
-Refer to Figure 5-3.Mark says he would buy one Mt.Dew per day regardless of the price.If this is true,then Mark's demand for Mt.Dew is represented by demand curve
A) A.
B) B.
C) C.
D) D.

Accepted Answer

If Mark's demand for Mt.Dew is not affected by price, then his demand is perfectly inelastic. Perfectly inelastic demand is represented by a vertical line on the graph, which is curve A in Figure 5-3.

Question 15

Figure 5-3 
-Refer to Figure 5-3.Which demand curve is perfectly inelastic?
A) A
B) B
C) C
D) D

Accepted Answer

The answer of Figure 5-3 
-Refer to Figure 5-3.Which demand...

Question 16

When the local used bookstore prices economics books at $15 each,it generally sells 70 books per month.If it lowers the price to $7,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 to $15 results in an increase in total revenue.
B) 2.91,and an increase in price from $7 to $15 results in a decrease in total revenue.
C) 0.34,and an increase in price from $7 to $15 results in an increase in total revenue.
D) 0.34,and an increase in price from $7 to $15 results in a decrease in total revenue.

Accepted Answer

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

Question 17

Figure 5-2 
-Refer to Figure 5-2.As price falls from Pa to Pb,we could use the three demand curves to calculate three different values of the price elasticity of demand.Which of the three demand curves would produce the smallest elasticity?
A) D1
B) D2
C) D3
D) All of the above are equally elastic.

Accepted Answer

The demand curve with the steepest slope (D3) would produce the smallest elasticity because it represents a market with few close substitutes, making consumers less responsive to changes in price.

Question 18

Melvin's Magnets earned $200 in total revenue last month when it sold 100 souvenir magnets.This month it earned $300 in total revenue when it sold 60 souvenir magnets.The price elasticity of demand for Marvin's Magnets is
A) 0.27.
B) 0.58.
C) 1.25.
D) 1.71.

Accepted Answer

The answer of Melvin's Magnets earned $200 in total revenue...

Question 19

Figure 5-3 
-Refer to Figure 5-3.Which demand curve is unit elastic?
A) A
B) B
C) D
D) None of the above.

Accepted Answer

The answer of Figure 5-3 
-Refer to Figure 5-3.Which demand...

Question 20

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price.If the owner is only interested in increasing revenue,she should
A) lower the price of the cinnamon rolls.
B) leave the price of the cinnamon rolls unchanged.
C) raise the price of the cinnamon rolls.
D) reduce costs.

Accepted Answer

The answer of The local bakery makes such great cinnamon...

Quiz 5: Elasticity and Its Application

If a 15% increase in price for a good results in a 20% decrease in quantity demanded,the price elasticity of demand is

Figure 5-3 -Refer to Figure 5-3.Which demand curve is perfectly elastic?

Figure 5-3 -Refer to Figure 5-3.The demand curve representing the demand for a luxury good with several close substitutes is

Fiona's Fish Emporium increased its total monthly revenue from $1,500 to $1,800 when it raised the price of tropical fish from $5 to $9.The price elasticity of demand for Fiona's Fish Emporium is

Consider luxury weekend hotel packages in Las Vegas.When the price is $250,the quantity demanded is 2,000 packages per week.When the price is $280,the quantity demanded is 1,700 packages per week.Using the midpoint method,the price elasticity of demand is about

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

If a 20% increase in price for a good results in a 15% decrease in quantity demanded,the price elasticity of demand is

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

Figure 5-2 -Refer to Figure 5-2.As price falls from Pa to Pb,which demand curve represents the most elastic demand?

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

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

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,the price elasticity of demand for good A is

An increase in price causes an increase in total revenue when demand is

Figure 5-3 -Refer to Figure 5-3.Mark says he would buy one Mt.Dew per day regardless of the price.If this is true,then Mark's demand for Mt.Dew is represented by demand curve

Figure 5-3 -Refer to Figure 5-3.Which demand curve is perfectly inelastic?

When the local used bookstore prices economics books at $15 each,it generally sells 70 books per month.If it lowers the price to $7,sales increase to 90 books per month.Given this information,we know that the price elasticity of demand for economics books is about

Figure 5-2 -Refer to Figure 5-2.As price falls from Pa to Pb,we could use the three demand curves to calculate three different values of the price elasticity of demand.Which of the three demand curves would produce the smallest elasticity?

Melvin's Magnets earned $200 in total revenue last month when it sold 100 souvenir magnets.This month it earned $300 in total revenue when it sold 60 souvenir magnets.The price elasticity of demand for Marvin's Magnets is

Figure 5-3 -Refer to Figure 5-3.Which demand curve is unit elastic?

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price.If the owner is only interested in increasing revenue,she should