Question 1

Last semester there were 5000 parking spaces available on campus.The price of a parking permit was $80 per semester,and the quantity demanded equaled the quantity supplied at this price.Suppose the number of parking spaces increases by 10% and the elasticity of demand for parking is 0.5.Parking Services should ________ the price of a permit by ________ to guarantee that quantity demanded will equal quantity supplied.

Accepted Answer

With a 10% increase in parking spaces, the new quantity of parking spaces available on campus would be 5500. Given an elasticity of demand of 0.5, we can use the following formula to determine the percentage change in price needed to maintain equilibrium:

% Change in Price = (Elasticity of Demand) x (% Change in Quantity)

% Change in Price = 0.5 x (10/100)

% Change in Price = 0.05 or 5%

Since the change in price needs to be negative (price needs to decrease), the best choice is B, which indicates a 20% decrease in price.

Question 2

What does it mean for a good to have a perfectly elastic demand? Draw a demand curve of this type.Explain why it has the shape that it does.

Accepted Answer

The answer of What does it mean for a good...

Question 3

A sandwich shop observes that when it increases the price of a sandwich,total revenue from sandwich sales increases,and when they lower the price of a sandwich,total revenue from taco sales decreases.This suggests:

Accepted Answer

When the price of a sandwich increases and total revenue also increases, it indicates that the demand for sandwiches is inelastic, meaning consumers are not significantly reducing their quantity demanded despite the price increase.

Question 4

When the price of charcoal grills increases,total revenue increases for charcoal grill retailers.From this information,we can conclude that:

Accepted Answer

The fact that total revenue increases as the price of charcoal grills increases suggests that the demand for charcoal grills is inelastic. In other words, consumers are still willing to buy charcoal grills even at a higher price, indicating that they place a higher value on owning a charcoal grill than they do on the amount of money they would save by not purchasing one.

Question 5

Increasing cigarette prices has an impact on teenagers' consumption.Therefore,decreasing cigarette prices would:

Accepted Answer

Decreasing cigarette prices would likely make cigarettes more affordable for teenagers, leading to an increase in their consumption.

Question 6

Consider the market for Chinese food in a large city like Philadelphia.If the number of Chinese restaurants increases and the price elasticity of demand for Chinese food is 2.0,then the equilibrium price of Chinese food will ________,the equilibrium quantity demanded of Chinese food will ________,and total Chinese food revenue will ________.

Accepted Answer

If the number of Chinese restaurants increases, it means there is an increase in supply for Chinese food which will lead to a decrease in the equilibrium price of Chinese food. As the price elasticity of demand for Chinese food is 2.0, it also means that the percentage change in the quantity demanded will be twice as much as the percentage change in price. Therefore, the equilibrium quantity demanded of Chinese food will increase. However, as the price decrease is larger than the increase in quantity demanded, the total Chinese food revenue will decrease. Thus, choice C is the best answer.

Question 7

If the demand for horse race tickets is inelastic,then as the price of horse race tickets increases,quantity demanded of horse race tickets will ________ and total revenue will ________.

Accepted Answer

When demand is inelastic, quantity demanded changes little with price changes. Thus, as price increases, total revenue increases because the percentage drop in quantity demanded is less than the percentage increase in price.

Question 8

Studio clothing store knows that the price elasticity of demand for its jeans is 2.5.If the price of jeans were to increase by 10%:

Accepted Answer

The price elasticity of demand is 2.5, which means that for every 1% increase in price, the quantity demanded decreases by 2.5%. Therefore, a 10% increase in price would lead to a 25% decrease in quantity demanded (10% * 2.5 = 25%).

Question 9

When the price of milk increases,total revenue increases for milk retailers.From this information,we can conclude that:

Accepted Answer

When the price of milk increases and the total revenue of milk retailers increases, it suggests that the demand for milk is inelastic. This means that consumers are not very responsive to changes in price and will continue to purchase milk even if the price increases. In contrast, if the price increase led to a decrease in total revenue, it would suggest that the demand for milk is elastic, meaning that consumers are highly responsive to changes in price.

Question 10

A game shop estimates that the price elasticity of demand on its newly released games is 2.0.In an effort to raise total revenue,the store should:

Accepted Answer

With a price elasticity of demand of 2.0, a decrease in price will lead to an increase in quantity demanded by a proportionately larger percentage, resulting in a net increase in total revenue. Therefore, the store should decrease the price on its newly released games to raise total revenue.

Question 11

If the demand for water is inelastic,then as the price of water falls,quantity demanded of water will ________ and total revenue will ________.

Accepted Answer

When the demand for water is inelastic, a decrease in the price of water results in a relatively smaller increase in the quantity demanded of water. Therefore, the increase in quantity demanded is not enough to offset the decrease in price, leading to a decrease in total revenue.

Question 12

What does it mean for a good to have a perfectly inelastic demand? Draw a demand curve of this type.Explain why it has the shape that it does.

Accepted Answer

The answer of What does it mean for a good...

Question 13

Is demand more elastic in the short run or the long run? Why?

Accepted Answer

The answer of Is demand more elastic in the short...

Question 14

The price of a new smartphone falls from $500 to $450.The quantity of smartphones demanded rises from 1500,00 per year to 200,000 per year.Use the midpoint formula to calculate the price elasticity of demand for new smartphones.Is the demand elastic,inelastic,or unit elastic?

Accepted Answer

The answer of The price of a new smartphone falls...

Question 15

Which of the following is a TRUE statement?

Accepted Answer

If demand is inelastic, a price increase will lead to an increase in total revenue. This is because the decrease in quantity demanded due to the price increase will be outweighed by the increase in price per unit.

Question 16

Maria raised the price of her burritos from $2.00 to $2.40 due to an increase on the price of cheese,one of the main ingredients.Her total revenue increased from $300 to $338.We can conclude that the demand for burritos is:

Accepted Answer

Since the price has increased and the total revenue has also increased, the demand for burritos is inelastic. This means that consumers are willing to pay the higher price for the burritos even though the price has increased. The increase in price does not significantly affect the quantity of burritos demanded.

Question 17

The price elasticity of demand for tomatoes,is 1.2 during the summer.If a drought causes the price of tomatoes to increase 15%,farmers can expect quantity demanded to:

Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. Given an elasticity of 1.2 and a price increase of 15%, the expected change in quantity demanded is -18% (1.2 * 15%).

Question 18

Recall the application regarding how changing beer taxes affected highway deaths.What has happened to the beer tax since 1951?

Accepted Answer

The answer of Recall the application regarding how changing beer...

Question 19

If the demand for orange juice is elastic,then as the price falls,quantity demanded for orange juice will ________ and total revenue for orange suppliers will ________.

Accepted Answer

When demand is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, which increases total revenue for suppliers.

Question 20

Taxi fares in Cleveland are set by the city government.Suppose that the local taxi companies petition the city council to raise taxi fares.Despite the fact that higher fares will ________ the quantity demanded for taxi cab rides,the taxi companies must believe that demand for taxis is ________ and therefore that revenue will ________.

Accepted Answer

The taxi companies must believe that demand is inelastic, meaning that the percentage decrease in quantity demanded is less than the percentage increase in price, leading to an increase in total revenue despite the decrease in quantity demanded.

Quiz 5: Elasticity: a Measure of Responsiveness