Question 1

If the demand curve is linear and downward sloping, which of the following statements is not correct?
A)Demand is more elastic on the lower part of the demand curve than on the upper part.
B)Different pairs of points on the demand curve can result in different values of the price elasticity of demand.
C)Different pairs of points on the demand curve result in identical values of the slope of the demand curve.
D)Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue.

Accepted Answer

The answer of If the demand curve is linear and...

Question 2

Total revenue will be at its largest value on a linear demand curve at the
A)top of the curve, where prices are highest.
B)midpoint of the curve.
C)low end of the curve, where quantity demanded is highest.
D)None of the above is correct.

Accepted Answer

Total revenue is equal to the price multiplied by the quantity demanded. On a linear demand curve, as price increases, quantity demanded decreases, and vice versa. Therefore, at the top of the curve (choice A), prices are high, but quantity demanded is low, resulting in a lower total revenue. Similarly, at the low end of the curve (choice C), quantity demanded is high, but prices are low, resulting in a lower total revenue.

At the midpoint of the curve (choice B), the price and quantity demanded are equal, resulting in a maximum total revenue. This is because any decrease in price would lead to increased quantity demanded, but not enough to offset the decrease in price, resulting in lower total revenue. Conversely, any increase in price would lead to a decrease in quantity demanded that would be greater than the increase in price, also resulting in lower total revenue. Therefore, the maximum total revenue occurs at the midpoint of the demand curve.

Question 3

When demand is elastic, a decrease in price will cause
A)an increase in total revenue.
B)a decrease in total revenue.
C)no change in total revenue but an increase in quantity demanded.
D)no change in total revenue but a decrease in quantity demanded.

Accepted Answer

The answer of When demand is elastic, a decrease in...

Question 4

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?
A)0.6
B)0.9
C)1
D)2.6

Accepted Answer

The answer of Which of the following could be the...

Question 5

If a change in the price of a good results in no change in total revenue, then
A)the demand for the good must be elastic.
B)the demand for the good must be inelastic.
C)the demand for the good must be unit elastic.
D)buyers must not respond very much to a change in price.

Accepted Answer

If a change in price results in no change in total revenue, then demand must be unit elastic. This means that the percentage change in quantity demanded is exactly equal to the percentage change in price, resulting in a constant total revenue. If demand were elastic, a price increase would result in a decrease in total revenue, and if demand were inelastic, a price increase would result in an increase in total revenue.

Question 6

If demand is price inelastic, then when price rises, total revenue
A)will fall.
B)will rise.
C)will remain unchanged.
D)may rise, fall, or remain unchanged. More information is need to determine the change in total revenue with certainty.

Accepted Answer

The answer of If demand is price inelastic, then when...

Question 7

How does total revenue change as one moves downward and to the right along a linear demand curve?
A)It always increases.
B)It always decreases.
C)It first increases, then decreases.
D)It is unaffected by a movement along the demand curve.

Accepted Answer

As one moves downward and to the right along a linear demand curve, the quantity demanded increases but the price decreases. Initially, this increase in quantity demanded causes total revenue to increase because the price decrease is outweighed by the quantity increase. However, as the price continues to decrease, the quantity increase is no longer enough to offset the price decrease, leading to a decrease in total revenue. Therefore, total revenue first increases, then decreases.

Question 8

On a downward-sloping linear demand curve, total revenue reaches its maximum value at the
A)midpoint of the demand curve.
B)lower end of the demand curve.
C)upper end of the demand curve.
D)It is impossible to tell without knowing prices and quantities demanded.

Accepted Answer

The midpoint of a linear demand curve corresponds to the quantity at which the price elasticity of demand is equal to 1 (unitary elasticity). At this point, a percentage increase in price leads to an equal percentage decrease in quantity demanded, which means that the total revenue remains the same. Above the midpoint, the demand becomes more price elastic, so a price increase leads to a larger decrease in quantity demanded and a decrease in total revenue. Below the midpoint, the demand becomes more price inelastic, so a price increase leads to a smaller decrease in quantity demanded and an increase in total revenue. Hence, the maximum total revenue occurs at the midpoint.

Question 9

When demand is elastic, an increase in price will cause
A)an increase in total revenue.
B)a decrease in total revenue.
C)no change in total revenue but an increase in quantity demanded.
D)no change in total revenue but a decrease in quantity demanded.

Accepted Answer

When demand is elastic, a change in price has a relatively large impact on the quantity demanded. This means that when the price increases, the decrease in quantity demanded will be proportionally greater than the increase in price, leading to a decrease in total revenue.

Question 10

When demand is inelastic, a decrease in price will cause
A)an increase in total revenue.
B)a decrease in total revenue.
C)no change in total revenue but an increase in quantity demanded.
D)no change in total revenue but a decrease in quantity demanded.

Accepted Answer

When demand is inelastic, a decrease in price will result in a proportionately smaller increase in the quantity demanded. As a result, the decrease in price will not increase total revenue enough to offset the decrease in price per unit, leading to a decrease in total revenue.

Question 11

Total revenue
A)always increases as price increases.
B)increases as price increases, as long as demand is elastic.
C)decreases as price increases, as long as demand is inelastic.
D)remains unchanged as price increases when demand is unit elastic.

Accepted Answer

The answer of Total revenue
A)always increases as price increases.
B)increases as...

Question 12

When demand is unit elastic, price elasticity of demand equals
A)1, and total revenue and price move in the same direction.
B)1, and total revenue and price move in opposite directions.
C)1, and total revenue does not change when price changes.
D)0, and total revenue does not change when price changes.

Accepted Answer

When demand is unit elastic, price elasticity of demand equals 1, which means that the percentage change in quantity demanded is equal to the percentage change in price. This results in no change in total revenue when price changes.

Question 13

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?
A)0
B)0.4
C)1
D)4

Accepted Answer

The answer of Which of the following could be the...

Question 14

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?
A)0.8
B)1
C)1.8
D)2.4

Accepted Answer

If the price elasticity of demand is less than 1, then a decrease in price would result in a proportionally smaller increase in quantity demanded, leading to a decrease in revenue. A price elasticity of demand of 0.8 fits this description. Choices B, C, and D have price elasticities of demand greater than 1, which means that a decrease in price would result in a proportionally larger increase in quantity demanded, leading to an increase in revenue.

Question 15

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is
A)1.50, and an increase in price will result in an increase in total revenue for good A.
B)1.50, and an increase in price will result in a decrease in total revenue for good A.
C)0.67, and an increase in price will result in an increase in total revenue for good A.
D)0.67, and an increase in price will result in a decrease in total revenue for good A.

Accepted Answer

Using the midpoint method, we can calculate the price elasticity of demand with the following formula:
(price change ÷ midpoint price) ÷ (quantity change ÷ midpoint quantity)

Let's plug in the numbers:
(price change) = $70 - $50 = $20
(midpoint price) = ($70 + $50) ÷ 2 = $60
(quantity change) = 400 - 500 = -100
(midpoint quantity) = (400 + 500) ÷ 2 = 450

(price change ÷ midpoint price) = ($20 ÷ $60) = 0.33
(quantity change ÷ midpoint quantity) = (-100 ÷ 450) = -0.22

(price change ÷ midpoint price) ÷ (quantity change ÷ midpoint quantity) = 0.33 ÷ -0.22 = -1.50

Since the absolute value of the price elasticity of demand is greater than 1, we know that it is elastic. Furthermore, since the price elasticity is between 0 and -1, we know that an increase in price will result in an increase in total revenue for good A. Therefore, the correct choice is C.

Question 16

When demand is inelastic, an increase in price will cause
A)an increase in total revenue.
B)a decrease in total revenue.
C)no change in total revenue but an increase in quantity demanded.
D)no change in total revenue but a decrease in quantity demanded.

Accepted Answer

The answer of When demand is inelastic, an increase in...

Question 17

In which of the following situations will total revenue increase?
A)Price elasticity of demand is 1.2, and the price of the good decreases.
B)Price elasticity of demand is 0.5, and the price of the good increases.
C)Price elasticity of demand is 3.0, and the price of the good decreases.
D)All of the above are correct.

Accepted Answer

The answer of In which of the following situations will...

Question 18

Moving downward and to the right along a linear demand curve, we know that total revenue
A)first increases, then decreases.
B)first decreases, then increases.
C)always increases.
D)always decreases.

Accepted Answer

The answer of Moving downward and to the right along...

Question 19

Which of the following is not possible?
A)Demand is elastic, and a decrease in price causes an increase in revenue.
B)Demand is unit elastic, and a decrease in price causes an increase in revenue.
C)Demand is inelastic, and an increase in price causes an increase in revenue.
D)Demand is perfectly inelastic, and an increase in price causes an increase in revenue.

Accepted Answer

If demand is unit elastic, then a decrease in price will lead to an equal increase in quantity demanded, resulting in no change in total revenue. Therefore, option B is not possible.

Question 20

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?
A)0.3
B)1
C)1.8
D)None of the above could be correct.

Accepted Answer

The answer of Which of the following could be the...

Quiz 5: Elasticity and Its Application

If the demand curve is linear and downward sloping, which of the following statements is not correct?

Total revenue will be at its largest value on a linear demand curve at the

When demand is elastic, a decrease in price will cause

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?

If a change in the price of a good results in no change in total revenue, then

If demand is price inelastic, then when price rises, total revenue

How does total revenue change as one moves downward and to the right along a linear demand curve?

On a downward-sloping linear demand curve, total revenue reaches its maximum value at the

When demand is elastic, an increase in price will cause

When demand is inelastic, a decrease in price will cause

Total revenue

When demand is unit elastic, price elasticity of demand equals

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?

When the price of good A is $50, the quantity demanded of good A is 500 units. When the price of good A rises to $70, the quantity demanded of good A falls to 400 units. Using the midpoint method, the price elasticity of demand for good A is

When demand is inelastic, an increase in price will cause

In which of the following situations will total revenue increase?

Moving downward and to the right along a linear demand curve, we know that total revenue

Which of the following is not possible?

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?