Question 1

Elasticity of demand for bus services is 0.23 for the peak hours and 0.42 for off-peak hours. The same percentage increase in price would:

Accepted Answer

Since the elasticity of demand is less than 1 for both peak and off-peak hours, demand is inelastic. Therefore, a price increase will lead to an increase in total revenue for both periods, with a greater increase during peak hours due to the lower elasticity.

Question 2

GreenTree Corporation sells live Christmas trees. It observes that when it increases the price of Christmas trees by 10 percent, revenue rises by 25 percent. The demand for Christmas trees is:

Accepted Answer

The demand is inelastic because the percentage increase in revenue (25%) is greater than the percentage increase in price (10%), indicating that the quantity demanded did not decrease significantly.

Question 3

Compared to the elasticity of demand for off-peak trains, one would expect elasticity of demand for peak-time trains to be:

Accepted Answer

The elasticity of demand for peak-time trains is typically less because commuters have fewer alternatives and are less sensitive to price changes during peak times.

Question 4

In Massachusetts, the price elasticity of license plates is 3.5 and their price is $50. Massachusetts is:

Accepted Answer

When demand is elastic (elasticity > 1), a decrease in price will lead to a proportionally larger increase in quantity demanded, thus increasing total revenue.

Question 5

Refer to the graph shown. When price rises from $30 to $40:

Accepted Answer

The answer of Refer to the graph shown. When price...

Question 6

The demand for a good is inelastic. Which of the following would be the most likely explanation for this?

Accepted Answer

A good is broadly defined means there are fewer substitutes available, making demand inelastic as consumers have fewer alternatives.

Question 7

Suppose average attendance to Six Flags is 500,000 when prices are $40 a ticket and 450,000 when prices are $50 a ticket. Other things being equal, the data imply that the elasticity of demand for Six Flags is:

Accepted Answer

The answer of Suppose average attendance to Six Flags is...

Question 8

Refer to the graph shown. When price is $40, revenue equals areas:

Accepted Answer

The answer of Refer to the graph shown. When price...

Question 9

During World War II, the price of rubber went up considerably. The rise in price stimulated research for alternatives. Today's automobile tires are made almost entirely from synthetic materials. As a result, the increase in the price of rubber eventually led to a very large drop in quantity demanded. This is an example of how the price elasticity of demand:

Accepted Answer

Over time, consumers and producers can find substitutes or alternatives, making demand more elastic. The long-term response to the price increase in rubber led to the development of synthetic alternatives, reducing the quantity demanded for natural rubber.

Question 10

Refer to the following table to answer the question. A local government is looking to reduce "undesirable" behavior on the part of its citizens: drinking alcoholic beverages and smoking. Assuming people cannot shop for alcoholic beverages out of town, a 10 percent tax on all alcoholic beverages would have the largest proportionate effect on the sale of: $\begin{array}{|c|c|}
\hline \text { Good } & \text { Elasticity } \
\hline \text { Cigarettes } & 3 \
\hline \text { Liquor } & .5 \
\hline \text { Wine } & .4 \
\hline \text { Beer } & .1 \
\hline
\end{array}$

Accepted Answer

The elasticity of liquor is 0.5, which is the highest among the alcoholic beverages listed. A higher elasticity means that a tax will have a larger proportionate effect on reducing sales.

Question 11

In California, the price elasticity for vanity license plates is .5 and their price is $78. California is:

Accepted Answer

When demand is inelastic (elasticity < 1), increasing the price will increase total revenue, indicating that California is not maximizing revenue at the current price.

Question 12

The demand for a good is elastic. Which of the following would be the most likely explanation for this?

Accepted Answer

When a good costs a large portion of one's total income, consumers are more sensitive to price changes, making the demand for the good elastic.

Question 13

The demand for a good is elastic. Which of the following would be the most likely explanation for this?

Accepted Answer

When the time interval considered is long, consumers have more time to find substitutes or adjust their behavior, making the demand for the good more elastic.

Question 14

The price elasticity of demand for insulin by diabetic patients is much smaller than the price elasticity of demand for leather shoes. This is an example of how the price elasticity of demand:

Accepted Answer

Insulin is a necessity for diabetic patients, making its demand inelastic, whereas leather shoes are not a necessity, making their demand more elastic.

Question 15

If elasticity of demand is greater than 1:

Accepted Answer

When elasticity of demand is greater than 1, demand is elastic, meaning consumers are sensitive to price changes. Therefore, a rise in price will lead to a proportionally larger decrease in quantity demanded, lowering total revenue.

Question 16

Which of the following most likely correctly orders goods from most to least demand elastic?

Accepted Answer

The answer of Which of the following most likely correctly...

Question 17

If elasticity of demand is less than 1:

Accepted Answer

When elasticity of demand is less than 1, demand is inelastic, meaning consumers are not very responsive to price changes. Therefore, a rise in price will increase total revenue.

Question 18

The president of a college has been told that when they raised their tuition by 15 percent the previous year, total revenue from tuition remained unchanged. Assuming the change in revenue is due to the change in tuition only, the president could conclude that demand for that college, over that tuition range, must be:

Accepted Answer

The demand is unit elastic (equal to 1) because the percentage change in quantity demanded is equal to the percentage change in price, resulting in unchanged total revenue.

Question 19

Along a downward-sloping straight-line demand curve beginning at the price where demand intersects the price axis, as price declines, revenue:

Accepted Answer

Along a downward-sloping demand curve, total revenue initially rises as price decreases due to increased quantity sold, but eventually declines as further price reductions lead to smaller increases in quantity demanded, reflecting the inelastic portion of the demand curve.

Question 20

For which of the following goods is the demand curve likely to be most inelastic?

Accepted Answer

Candy is a broad category with fewer substitutes compared to specific types of chocolate bars, making its demand curve more inelastic.

Quiz 6: Describing Supply and Demand: Elasticities

Elasticity of demand for bus services is 0.23 for the peak hours and 0.42 for off-peak hours. The same percentage increase in price would:

GreenTree Corporation sells live Christmas trees. It observes that when it increases the price of Christmas trees by 10 percent, revenue rises by 25 percent. The demand for Christmas trees is:

Compared to the elasticity of demand for off-peak trains, one would expect elasticity of demand for peak-time trains to be:

In Massachusetts, the price elasticity of license plates is 3.5 and their price is $50. Massachusetts is:

Refer to the graph shown. When price rises from $30 to $40:

The demand for a good is inelastic. Which of the following would be the most likely explanation for this?

Suppose average attendance to Six Flags is 500,000 when prices are $40 a ticket and 450,000 when prices are $50 a ticket. Other things being equal, the data imply that the elasticity of demand for Six Flags is:

Refer to the graph shown. When price is $40, revenue equals areas:

In California, the price elasticity for vanity license plates is .5 and their price is $78. California is:

The demand for a good is elastic. Which of the following would be the most likely explanation for this?

The demand for a good is elastic. Which of the following would be the most likely explanation for this?

The price elasticity of demand for insulin by diabetic patients is much smaller than the price elasticity of demand for leather shoes. This is an example of how the price elasticity of demand:

If elasticity of demand is greater than 1:

Which of the following most likely correctly orders goods from most to least demand elastic?

If elasticity of demand is less than 1:

Along a downward-sloping straight-line demand curve beginning at the price where demand intersects the price axis, as price declines, revenue:

For which of the following goods is the demand curve likely to be most inelastic?