Question 1

When demand is unit elastic, an increase in price will result in an increase in total revenue.

Accepted Answer

When demand is unit elastic, a change in price will result in no change in total revenue. This means that the increase in revenue from the higher price is exactly offset by the decrease in revenue from the lower quantity demanded.

Question 2

When demand is elastic, a decrease in price will result in an increase in total revenue.

Accepted Answer

When demand is elastic, a decrease in price leads to a proportionately larger increase in quantity demanded, resulting in an increase in total revenue. This is because the increase in quantity demanded more than offsets the decrease in price, leading to a net gain in revenue.

Question 3

Related to the Economics in Practice on page 109: Frank runs a corner delicatessen and one day decides to raise his prices by 10 percent. Total revenue is likely to ________ at the end of the first month of the higher prices since demand is relatively elastic in the ________ term.
A) rise; short
B) fall; short
C) rise; long
D) fall; long

Accepted Answer

According to the information given, Frank's decision to raise prices by 10% is likely to lead to a fall in total revenue at the end of the first month since demand is relatively elastic in the short term. This means that consumers are likely to be sensitive to the price increase and may reduce their purchases, leading to a decline in total revenue. Therefore, the correct choice is D.

Question 4

How total revenue changes when a price changes can be predicted using price elasticity of demand.

Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. If demand is elastic, then a change in price will result in a proportionate change in quantity demanded, and total revenue will move in the opposite direction of the price change. If demand is inelastic, then a price change will have a smaller effect on quantity demanded, and total revenue will move in the same direction as the price change. Understanding the price elasticity of demand can help predict how total revenue will be affected by changes in price.

Question 5

Demand is more elastic for an item for which few substitutes are available.

Accepted Answer

Demand is less elastic for an item for which few substitutes are available, because consumers have fewer alternatives and are less sensitive to price changes.

Question 6

When there are more substitutes for a product, the ________ for the product is ________.
A) demand; less price elastic
B) demand; more price elastic
C) income elasticity; greater
D) income elasticity; smaller

Accepted Answer

When there are more substitutes for a product, consumers have more options to choose from, making the demand for the product more sensitive to changes in price. This means that the demand for the product is more price elastic, as even small changes in price can cause a significant shift in consumer behavior.

Question 7

If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic.

Accepted Answer

Taxing goods for which demand is price elastic would not be effective for generating significant tax revenue because consumers would likely reduce their consumption significantly in response to price increases, leading to lower overall tax collection. Instead, taxing goods with inelastic demand, where consumers are less sensitive to price changes, tends to generate more revenue.

Question 8

When demand is unit elastic, a decrease in price will result in no change in total revenue.

Accepted Answer

When demand is unit elastic, the percentage change in quantity demanded is exactly equal to the percentage change in price, resulting in no change in total revenue.

Question 9

The determinants of elasticity include
A) availability of substitutes.
B) price relative to income.
C) time.
D) all of the above

Accepted Answer

All of the factors listed (availability of substitutes, price relative to income, and time) are important determinants of elasticity. The availability of substitutes affects how responsive consumers are to changes in price, while the price relative to income determines how much of a consumer's budget will be affected by a given price change. Time is also a key determinant of elasticity, as consumers may become more or less sensitive to price changes over time depending on factors such as changes in tastes or the availability of new substitutes.

Question 10

When demand is elastic, an increase in price will result in an increase in total revenue.

Accepted Answer

When demand is elastic, an increase in price will result in a decrease in quantity demanded which will, in turn, decrease total revenue.

Question 11

When demand is inelastic, a decrease in price will result in an increase in total revenue.

Accepted Answer

When demand is inelastic, a decrease in price will lead to a proportionally smaller increase in the quantity demanded. As a result, the increase in revenue from the increased quantity sold will not be enough to offset the decrease in revenue from the lowered price, leading to a decrease in total revenue.

Question 12

Related to the Economics in Practice on page 108: Which of the following, if true, would most effectively undermine the argument that raising cigarette taxes reduces the number of people who smoke cigarettes?
A) The demand for cigarettes is relatively inelastic.
B) The demand for cigarettes is relatively elastic.
C) The supply for cigarettes is relatively inelastic.
D) The supply for cigarettes is relatively elastic.

Accepted Answer

If the demand for cigarettes is relatively inelastic, it means that consumers' quantity demanded does not significantly decrease with an increase in price, suggesting that raising taxes may not effectively reduce the number of smokers.

Question 13

The more time that elapses, the
A) less price elastic is the demand for the product.
B) more price elastic is the demand for the product.
C) greater the income elasticity of demand for a product.
D) smaller the income elasticity of demand for the product.

Accepted Answer

The more time that elapses, the more opportunities consumers have to find substitutes or alternatives to the product in question, making the demand more price elastic.

Question 14

For perfectly price inelastic supply,
A) price is solely determined by supply.
B) price is solely determined by demand.
C) only a government can set the price.
D) either supply or demand may set the price.

Accepted Answer

For perfectly price inelastic supply, the quantity supplied does not change regardless of changes in price. Therefore, the price is solely determined by demand. If demand increases, the price will increase, and if demand decreases, the price will decrease.

Question 15

An increase in demand caused no change in the equilibrium price. Thus, supply must be
A) perfectly inelastic.
B) inelastic.
C) elastic.
D) perfectly elastic.

Accepted Answer

When supply is perfectly elastic, it means that suppliers are willing to supply any quantity at a particular price. Therefore, if demand increases and the equilibrium price does not change, it indicates that the supply curve is perfectly elastic, allowing the quantity supplied to increase to meet the higher demand without changing the price.

Question 16

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

Accepted Answer

If an item represents a larger portion of a person's budget, they are likely to be more price-sensitive and responsive to changes in the price of that item. This means that demand for the item will be more elastic, meaning that a small change in price will have a relatively larger change in the quantity demanded. On the other hand, if an item represents a small portion of a person's budget, they are less likely to be sensitive to changes in price and demand for the item will be more inelastic.

Question 17

Related to the Economics in Practice on page 109: Which of the following best explains why demand is often more elastic in the long run than it is in the short run?
A) When demand is elastic, price increases reduce revenue because a small price increase will lead to a large decrease in quantity demanded.
B) In the long run, consumers have greater access to substitutes.
C) Consumers tend to postpone making purchasing decisions as long as possible.
D) In the short run, prices can change rapidly, but in the long run they are more stable.

Accepted Answer

In the long run, consumers have more time to adjust to price changes and find substitutes for the product, making demand more elastic.

Question 18

When demand is inelastic, an increase in price will result in an increase in total revenue.

Accepted Answer

When demand is inelastic, the percentage change in quantity demanded is lower than the percentage change in price. Therefore, an increase in price will result in a proportionately smaller decrease in quantity demanded. This smaller decrease in quantity demanded will be offset by the increase in price, resulting in an increase in total revenue.

Question 19

Related to the Economics in Practice on page 108: Which of the following, if true, would support the argument for raising cigarette taxes even if the price of cigarettes has relatively little impact on adults' cigarette consumption?
A) The health risks of cigarette smoking are affected by the amount of nicotine in cigarettes as well as the number of cigarettes smoked.
B) When cigarette taxes vary between neighboring states, people have an incentive to buy cigarettes in the state with lower taxes.
C) Illness due to smoking is a significant cause of lost economic productivity.
D) The demand for cigarettes is more elastic for underage smokers as compared to that of adult smokers.

Accepted Answer

The answer of Related to the Economics in Practice on...

Question 20

A perfectly price elastic supply curve will be a(n) ________ line.
A) horizontal
B) vertical
C) upward sloping
D) downward sloping

Accepted Answer

The answer of A perfectly price elastic supply curve will...

Quiz 5: Elasticity

When demand is unit elastic, an increase in price will result in an increase in total revenue.

When demand is elastic, a decrease in price will result in an increase in total revenue.

Related to the Economics in Practice on page 109: Frank runs a corner delicatessen and one day decides to raise his prices by 10 percent. Total revenue is likely to at the end of the first month of the higher prices since demand is relatively elastic in the term.

How total revenue changes when a price changes can be predicted using price elasticity of demand.

Demand is more elastic for an item for which few substitutes are available.

When there are more substitutes for a product, the for the product is .

If government officials are mainly interested in generating tax revenue, then they should tax goods for which demand is price elastic.

When demand is unit elastic, a decrease in price will result in no change in total revenue.

The determinants of elasticity include

When demand is elastic, an increase in price will result in an increase in total revenue.

When demand is inelastic, a decrease in price will result in an increase in total revenue.

Related to the Economics in Practice on page 108: Which of the following, if true, would most effectively undermine the argument that raising cigarette taxes reduces the number of people who smoke cigarettes?

The more time that elapses, the

For perfectly price inelastic supply,

An increase in demand caused no change in the equilibrium price. Thus, supply must be

Demand is more elastic for an item which represents a relatively large part of a person's total budget.

Related to the Economics in Practice on page 109: Which of the following best explains why demand is often more elastic in the long run than it is in the short run?

When demand is inelastic, an increase in price will result in an increase in total revenue.

Related to the Economics in Practice on page 108: Which of the following, if true, would support the argument for raising cigarette taxes even if the price of cigarettes has relatively little impact on adults' cigarette consumption?

A perfectly price elastic supply curve will be a(n) ________ line.