Question 1

As price decreases and we move down further along a linear demand curve, the price elasticity of demand will:

Accepted Answer

As price decreases and we move down further along a linear demand curve, the price elasticity of demand will decrease. This is because the percentage change in quantity demanded becomes smaller for each percentage change in price.

Question 2

If Herbert, the hair stylist, raises the price of his cuts from $13 to $15 and finds the number of cuts falls from 300 to 260, then the demand for Herbert's cuts in this range is:

Accepted Answer

The answer of If Herbert, the hair stylist, raises the...

Question 3

​ A _______ demand curve has a price elasticity of demand that is perfectly elastic.

Accepted Answer

A horizontal demand curve means that any increase in price will result in a very large decrease in the quantity demanded, making the price elasticity of demand perfectly elastic.

Question 4

Demand price elasticity is measured by the:

Accepted Answer

Demand price elasticity is measured by the percentage change in quantity demanded divided by the percentage change in price. This shows how much the quantity demanded responds to a change in price.

Question 5

Which of the statements below does not describe a demand curve that is unit elastic?

Accepted Answer

A demand curve that is unit elastic has a price elasticity of demand equal to one. This means that a change in price will result in an equal percentage change in quantity demanded, but it will not necessarily result in no change in total revenue. In fact, the total revenue will only remain constant if the percentage change in price and quantity demanded are equal. Therefore, statement D does not describe a demand curve that is unit elastic because it implies that a change in price will have no effect on the quantity demanded, which is not true for a unit elastic demand curve.

Question 6

If a straight-line demand curve slopes down, price elasticity will:

Accepted Answer

Price elasticity of demand changes along a straight-line demand curve because elasticity depends on both the slope of the demand curve and the price-quantity combination at each point.

Question 7

If the quantity of bread demanded rises 2 percent when the price of bread declines 10 percent, then the price elasticity of demand is:​

Accepted Answer

Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is 2% / -10% = -0.2. The absolute value is 0.2.

Question 8

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

Accepted Answer

The price elasticity of demand formula is (% change in quantity demanded / % change in price). In this case, the price elasticity is 4.5, so a 10 percent increase in price would lead to a 45 percent decrease in quantity demanded (4.5 x 10 = 45). Therefore, the correct answer is C.

Question 9

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:

Accepted Answer

The increase in sales by 200 pizzas (from 400 to 600) suggests that the consumers are sensitive to the price change. Therefore, the demand for Sam's pizzas in this price range is price elastic.

Question 10

Tara buys four music cassettes when the price is $10 and two cassettes when the price is $14. Her price elasticity of demand is:

Accepted Answer

The formula for price elasticity of demand is (% Change in Quantity Demanded) / (% Change in Price). From the information given, we can see that the price increases from $10 to $14, which is a 40% increase. The quantity demanded changes from 4 cassettes to 2 cassettes, which is a 50% decrease. Therefore, the price elasticity of demand is (50%/40%), which simplifies to 1.25. However, since the answer choices do not include decimal values, the closest answer is 2. This indicates that Tara's demand for cassettes is relatively elastic - a 1% increase in price leads to a more than 2% decrease in quantity demanded.

Question 11

Leo's Bakery reduces the price of wheat bread from $3 to $1 and finds that quantity demanded increases from 100 to 122 loaves. Leo calculates that his price elasticity of demand for wheat bread is:

Accepted Answer

The answer of Leo's Bakery reduces the price of wheat...

Question 12

If the price elasticity of demand for a product measures .45,

Accepted Answer

A price elasticity of demand of .45 means that the demand for this product is price inelastic, meaning that a change in price will not have a significant impact on the quantity demanded. Therefore, a decrease in price will not necessarily lead to an increase in total revenue.

Question 13

You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?

Accepted Answer

If the demand for tickets is price inelastic, an increase in ticket prices will lead to a proportionally smaller decrease in quantity demanded, thus increasing total revenue.

Question 14

Since it is always a negative number, economists use the convention of taking the absolute value of:

Accepted Answer

The convention of taking the absolute value is used for price elasticity of demand because the negative sign indicates an inverse relationship between price and quantity demanded, which is already accounted for in the formula. Taking the absolute value allows for easier comparison of elasticities across different products or markets.

Question 15

As one moves down a straight-line, down-sloping demand curve, price elasticity will:

Accepted Answer

As one moves down a straight-line, down-sloping demand curve, the price elasticity of demand decreases, starting from elastic, moving to unit elastic, and finally becoming inelastic.

Question 16

​Suppose you are on a committee seeking to increase revenue from your city's bus system. If demand is _______, you would recommend raising the fare.

Accepted Answer

If demand is inelastic, it means that a change in the price of the bus fare would not significantly impact the quantity demanded. Therefore, raising the fare would result in a higher revenue for the bus system.

Question 17

Elasticity measures how "sensitive" consumers are by measuring their change in ____ as the price of the product changes.

Accepted Answer

Elasticity measures how much the quantity demanded changes as the price of a product changes. If the quantity demanded changes significantly with a small change in price, the product is considered elastic. If the quantity demanded changes little with a change in price, the product is considered inelastic.

Question 18

If Pete raises his price of muffins from $2 to $3 and his sales revenue increases from $35,000 to $38,000, then:

Accepted Answer

The increase in price led to an increase in revenue, indicating that the demand for Pete's muffins in this price range is price inelastic. This means that the percentage change in quantity demanded was less than the percentage change in product price. Option A, C, and D are incorrect because they refer to a different scenario of price elasticity. Option E is incorrect because the scenario described does not violate the law of demand.

Question 19

​ A _______ demand curve has a price elasticity of demand that is perfectly inelastic.

Accepted Answer

A perfectly inelastic demand curve means that the quantity demanded does not change regardless of changes in price. This is illustrated by a vertical demand curve, where the quantity demanded remains the same even if the price changes.

Question 20

If a 10 percent cut in price causes a 15 percent increase in sales, then:

Accepted Answer

The 15 percent increase in sales shows that demand is responsive to the price change, meaning it is price elastic. A price cut led to a higher percentage increase in quantity demanded, resulting in an overall increase in revenue. Therefore, total revenue will increase due to the price cut.

Quiz 5: Price Elasticity of Demand and Supply