Question 1

When a product's price has an inverse relationship with total expenditure,then demand has a price elasticity of

Accepted Answer

When a product's price has an inverse relationship with total expenditure, it indicates that demand is elastic, meaning the price elasticity of demand is greater than one.

Question 2

With a downward- sloping straight- line demand curve,price elasticity of demand is

Accepted Answer

The answer of With a downward- sloping straight- line demand...

Question 3

Suppose an analysis of the possible effects of increases in university tuition fees predicts that a 10% increase in tuition fees will result in a 3% decline in enrolment.What is the implied price elasticity of demand for university attendance?

Accepted Answer

The price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. In this case, the percentage change in quantity demanded is -3%/10% = -0.3, which implies that for every 1% increase in tuition fees, there is a 0.3% decrease in enrolment. Therefore, the implied price elasticity of demand is 0.3.

Question 4

A perfectly horizontal demand curve shows that the price elasticity of demand is

Accepted Answer

A perfectly horizontal demand curve indicates that consumers will only buy at one price, and any change in price will result in zero quantity demanded, reflecting infinite price elasticity.

Question 5

If the value of the price elasticity of demand is 0.6,demand is said to be

Accepted Answer

A price elasticity of demand of 0.6 indicates that for every 1% increase in price, quantity demanded will decrease by 0.6%. This suggests that the demand for the good is relatively unresponsive to changes in price, hence it is considered to be inelastic.

Question 6

Suppose that the quantity of a good demanded rises from 90 units to 110 units when the price falls from $1.20 to 80 cents per unit.The price elasticity of demand for this product is

Accepted Answer

The answer of Suppose that the quantity of a good...

Question 7

The imposition of an excise tax usually causes the price paid by consumers to ,while the price received by sellers .

Accepted Answer

The imposition of an excise tax usually leads to an increase in the cost of production for sellers. To offset this cost, sellers raise the price of the product, which causes the price paid by consumers to rise. Therefore, the price paid by consumers rises, while the price received by sellers falls.

Question 8

Suppose that the quantity of lemonade demanded falls from 103 000 litres per week to 97 000 litres per week as a result of a 10% increase in its price.The price elasticity of demand for lemonade is therefore

Accepted Answer

Price elasticity of demand (PED) measures the percentage change in quantity demanded in response to a one percent change in price. Using the midpoint formula, we get:
PED = ((Q2 - Q1)/((Q2 + Q1)/2)) / ((P2 - P1)/((P2 + P1)/2))
where Q1 = 103000, Q2 = 97000, P1 and P2 represent the before and after price, respectively.
Let's assume the before price was $1 per litre. After a 10% increase, the new price would be $1.10 per litre.
PED = ((97000-103000)/((97000+103000)/2)) / ((1.10 - 1)/((1.10+1)/2))
PED = (-6000/100000) / (0.10/1.05)
PED = -0.06 / 0.0952 
PED = -0.63
The negative sign indicates that the demand for lemonade is price inelastic. Absolute value is used to make it positive. PED is less than 1, which means a 10% increase in price leads to a less than 10% decrease in quantity demanded, showing that lemonade is price inelastic. Therefore, the answer is D) 0.6.

Question 9

A value of infinity for the elasticity of supply of some product implies that

Accepted Answer

A value of infinity for the elasticity of supply means that the supply curve is perfectly elastic, which is represented by a horizontal line. This indicates that any quantity of the product will be supplied at a specific price.

Question 10

The elasticity of supply for a given commodity is calculated as

Accepted Answer

Elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in product price. Therefore, choice D is the correct answer.

Question 11

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked.(P = $15,Q = 100).The city government imposes a tax of $3 per car parked per day.Market equilbirium adjusts to P = $16 and Q = 95.After imposition of the tax,what is the daily after- tax price received by the seller per car parked?

Accepted Answer

Before the tax imposition, buyers were paying $15 for each car parked, which was the price received by the seller. After the tax imposition, the equilibrium price is $16, but this is the price paid by buyers. Thus, the price received by the seller after the tax is $13, which is $3 less than before the tax. Therefore, the correct answer is E.

Question 12

Suppose you are advising the government on changes in the gasoline market.The current price is $1.00 per litre and the quantity demanded is 2.5 million litres per day.Long- run price elasticity of demand is constant at 0.8.If the supply of gasoline is reduced so that the price rises to $1.50 per litre,then quantity demanded is predicted to fall in the long run by

Accepted Answer

The answer of Suppose you are advising the government on...

Question 13

The price of apples at a local market rises from $2.95 to $3.05 per kilogram,and as a result the quantity of oranges that households purchase increases from 3950 to 4050 kilograms per week.The cross- price elasticity is

Accepted Answer

The answer of The price of apples at a local...

Question 14

When the percentage change in quantity demanded is less than the percentage change in price that brought it about,demand is said to be

Accepted Answer

When the percentage change in quantity demanded is less than the percentage change in price that brought it about, demand is said to be inelastic. This means that consumers are not very responsive to changes in price, and will only slightly adjust their quantity demanded in response to a change in price.

Question 15

Consider an excise tax imposed on daily parking charges in the downtown of a small city.Before the imposition of the tax,equilibrium price and quantity are $15 and 100 cars parked.(P = $15,Q = 100).The city government imposes a tax of $3 per car parked per day.Market equilibrium adjusts to P = $16 and Q = 95.Which of the following statements about the burden of the tax is correct?

Accepted Answer

The fact that the equilibrium quantity decreased after the tax was imposed suggests that demand is relatively inelastic. This means that consumers are willing to pay a higher price to park downtown, even with the tax. Since supply is more inelastic than demand (shown by the smaller decrease in quantity relative to the increase in price), the burden of the tax falls more on the seller. Therefore, choice D is correct.

Question 16

If the total expenditure on perfume increases when the price of perfume falls,the price elasticity of demand is

Accepted Answer

When the total expenditure on a good increases as its price falls, it indicates that the quantity demanded increases by a proportionally larger amount than the decrease in price, which means the demand is elastic (price elasticity of demand is greater than one).

Question 17

If the total expenditure on clothing decreases when the price of clothing falls,the price elasticity of demand is

Accepted Answer

When the total expenditure on clothing decreases as the price falls, it indicates that the percentage decrease in price is greater than the percentage increase in quantity demanded, implying that demand is inelastic (elasticity less than one).

Question 18

A demand curve that is the shape of a rectangular hyperbola

Accepted Answer

A rectangular hyperbola demand curve represents a situation where the price elasticity of demand is constant and equal to one (unit elastic) at every point along the curve.

Question 19

If price elasticity of demand for good X is equal to 0.4,then an increase in price will cause total expenditure on good X to

Accepted Answer

When the price elasticity of demand is less than 1 (inelastic), an increase in price leads to an increase in total expenditure because the percentage change in quantity demanded is less than the percentage change in price.

Question 20

Consider two demand curves and the same price change for both.If the resulting percentage change in quantity demanded is greater for one (D1)than the other (D2),we can conclude

Accepted Answer

If the resulting percentage change in quantity demanded is greater for D1 than D2, it means that D1 is more responsive to changes in price and therefore more elastic than D2.

Quiz 4: Elasticity