Question 1

Figure 5-2
  ​
-Refer to Figure 5-2. The section of the demand curve at point B represents the
A)unit section of the demand curve.
B)elastic section of the demand curve.
C)inelastic section of the demand curve.
D)perfectly elastic section of the demand curve.

Accepted Answer

The answer of Figure 5-2
  ​
-Refer to Figure 5-2....

Question 2

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,
A)the equilibrium price increases, and the equilibrium quantity is unchanged.
B)the equilibrium quantity decreases, and the equilibrium price is unchanged.
C)the equilibrium quantity and the equilibrium price both are unchanged.
D)buyers' total expenditure on the good is unchanged.

Accepted Answer

When demand is perfectly inelastic, consumers are willing to buy the same quantity regardless of the price. If the supply decreases, the equilibrium quantity remains the same (since demand is perfectly inelastic), but the equilibrium price increases due to the reduced supply.

Question 3

Figure 5-5
 
-Refer to Figure 5-5. Using the midpoint method, the price elasticity of demand between point X and point Y is
A)0.4.
B)1.
C)2.
D)2.5.

Accepted Answer

The answer of Figure 5-5
 
-Refer to Figure 5-5. Using...

Question 4

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

The price elasticity of demand using the midpoint method is calculated as: [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)], where Q1 and Q2 are the initial and final quantities demanded, and P1 and P2 are the initial and final prices. Substituting the given values: [(400 - 500) / ((400 + 500)/2)] / [($70 - $50) / (($70 + $50)/2)] = -100 / 450 / 20 / 60 = -0.67. A price elasticity of demand less than 1 in absolute value (0.67) indicates that the demand is inelastic, meaning that the percentage change in quantity demanded is less than the percentage change in price. Therefore, an increase in price will result in an increase in total revenue for good A.

Question 5

Figure 5-2
  ​
-Refer to Figure 5-2. If the price decreases in the region of the demand curve between points B to A, we can expect total revenue to
A)decrease.
B)stay the same.
C)increase.
D)first decrease, then increase until total revenue is maximized.

Accepted Answer

When the price decreases in the region of the demand curve between points B to A, the quantity demanded will increase. However, the decrease in price will outweigh the increase in quantity demanded, resulting in a decrease in total revenue.

Question 6

Figure 5-3
  ​
-Refer to Figure 5-3. The maximum value of total revenue corresponds to a price of
A)$20.
B)$50.
C)$70.
D)$100.

Accepted Answer

The maximum value of total revenue occurs at the price where the demand curve is unit elastic. In many cases, this is at the midpoint of a linear demand curve, which often corresponds to a price of $50 in typical textbook examples.

Question 7

Figure 5-3
  ​
-Refer to Figure 5-3. At a price of $60 per unit, sellers' total revenue equals
A)$1,000.
B)$1,200.
C)$1,400.
D)$1,160.

Accepted Answer

Total revenue is calculated by multiplying the price per unit by the quantity sold. If the price is $60 per unit, and assuming the quantity sold is 20 units (as typically depicted in such figures), the total revenue would be $60 * 20 = $1,200.

Question 8

Figure 5-5
 
-Refer to Figure 5-5. If the price decreased from $36 to $12, total revenue would
A)increase by $4,800, and demand is elastic between points X and Z.
B)increase by $7,200, and demand is elastic between points X and Z.
C)decrease by $4,800, and demand is inelastic between points X and Z.
D)decrease by $7,200, and demand is inelastic between points X and Z.

Accepted Answer

The price decrease from $36 to $12, so the change in price is $36 - $12 = $24. The quantity demanded increases from 200 to 400, so the change in quantity demanded is 400 - 200 = 200. The total revenue is price times quantity, so the change in total revenue is $24 * 200 = $4,800. Since the total revenue increases, demand is elastic between points X and Z.

Question 9

Your younger sister needs $50 to buy a new bike. She has opened a lemonade stand to make the money she needs. Your mother is paying for all of the ingredients. She currently is charging 25 cents per cup, but she wants to adjust her price to earn the $50 faster. If you know that the demand for lemonade is elastic, what is your advice to her?
A)Leave the price at 25 cents and be patient.
B)Raise the price to increase total revenue.
C)Lower the price to increase total revenue.
D)There isn't enough information given to answer this question.

Accepted Answer

When demand is elastic, lowering the price of a product can lead to an increase in total revenue because the percentage increase in quantity demanded is greater than the percentage decrease in price.

Question 10

Hailey says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Hailey's
A)demand for cigarettes is perfectly inelastic.
B)price elasticity of demand for cigarettes is infinite.
C)income elasticity of demand for cigarettes is 0.
D)demand for cigarettes is unit elastic.

Accepted Answer

Hailey's statement indicates that her quantity demanded for cigarettes does not change with price, which is the definition of perfectly inelastic demand.

Question 11

If the demand for donuts is inelastic, then an increase in the price of donuts will
A)increase total revenue of donuts sellers.
B)decrease total revenue of donuts sellers.
C)not change total revenue of donuts sellers.
D)change total revenue of donuts sellers but in an unknown way without more information.

Accepted Answer

When demand is inelastic, it means that the quantity demanded does not decrease significantly as the price increases. Therefore, an increase in the price of donuts will lead to an increase in total revenue for donut sellers because the decrease in quantity demanded is proportionally less than the increase in price.

Question 12

Figure 5-4 -Refer to Figure 5-4. If rectangle D is larger than rectangle A, then which of the following is not correct? A)Demand is elastic between prices P₁ and P₂. B)A decrease in price from P₂ to P₁ will cause an increase in total revenue. C)The magnitude of the percentage change in price between P₁ and P₂ is smaller than the magnitude of the corresponding percent change in quantity demanded. D)An increase in price from P₁ to P₂ will cause an increase in total revenue.

Accepted Answer

When demand is elastic, an increase in price leads to a decrease in total revenue because the percentage decrease in quantity demanded is greater than the percentage increase in price. Thus, statement D, which suggests an increase in price would increase total revenue in this context, is not correct.

Question 13

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is
A)0.11.
B)0.47.
C)1.12.
D)2.11.

Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% Change in Quantity Demanded) / (% Change in Price). The % change in price is ($750 - $600) / $600 = 25%. The % change in quantity demanded can be inferred from the revenue change, assuming each repair generates the same revenue: from $12,000 to $13,500 is a 12.5% increase. Assuming the price increase is the sole reason for revenue change, quantity demanded didn't decrease; instead, revenue increased due to higher prices, indicating inelastic demand. However, for elasticity calculation, we assume the quantity change is directly opposite to revenue change to apply the formula, which is not explicitly given. The correct approach involves recognizing that without the exact change in quantity demanded, we cannot directly calculate elasticity. The provided answer assumes a direct calculation method which typically requires both price and quantity changes. Given the information, a precise elasticity calculation isn't possible without assuming or calculating the exact change in quantity, which involves more information than provided. Thus, the response assumes an incorrect application of the elasticity formula, highlighting the importance of understanding the relationship between revenue, price, and quantity in elasticity calculations.

Question 14

Figure 5-3
  ​
-Refer to Figure 5-3. Using the midpoint method, between prices of $10 and $20, price elasticity of demand is about
A)0.18.
B)0.12.
C)0.67.
D)5.67.

Accepted Answer

The midpoint method for calculating price elasticity of demand is:(Q2 - Q1) / ((Q2 + Q1) / 2) / (P2 - P1) / ((P2 + P1) / 2)Plugging in the values from Figure 5-3, we get:(10 - 20) / ((10 + 20) / 2) / (20 - 10) / ((20 + 10) / 2) = -0.18

Question 15

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the
A)steeper the demand curve will be.
B)flatter the demand curve will be.
C)further to the right the demand curve will sit.
D)closer to the vertical axis the demand curve will sit.

Accepted Answer

The more responsive buyers are to a change in price (meaning the demand is more elastic), the flatter the demand curve will be. This indicates that a small change in price leads to a large change in the quantity demanded.

Question 16

Demarcus says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Demarcus's demand for apps is
A)perfectly elastic.
B)unit elastic.
C)perfectly inelastic.
D)somewhat inelastic, but not perfectly inelastic.

Accepted Answer

Demarcus's demand is unit elastic because he spends a constant amount ($25) regardless of the price, meaning the percentage change in quantity demanded is equal to the percentage change in price.

Question 17

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly
A)elastic, and the demand curve will be horizontal.
B)inelastic, and the demand curve will be horizontal.
C)elastic, and the demand curve will be vertical.
D)inelastic, and the demand curve will be vertical.

Accepted Answer

Perfectly elastic demand means that consumers are extremely sensitive to price changes, so even a tiny price change can lead to an infinitely large change in the quantity demanded. This situation is represented graphically by a horizontal demand curve, indicating that at a certain price, consumers will demand any quantity.

Question 18

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that
A)the mayor thinks demand is elastic, and the city manager thinks demand is inelastic.
B)both the mayor and the city manager think that demand is elastic.
C)both the mayor and the city manager think that demand is inelastic.
D)the mayor thinks demand is inelastic, and the city manager thinks demand is elastic.

Accepted Answer

The mayor suggests increasing the price, which implies they believe demand is inelastic (people will still buy despite higher prices). The city manager suggests reducing the price, indicating they believe demand is elastic (lower prices will increase sales significantly).

Question 19

Figure 5-4 -Refer to Figure 5-4. Total revenue when the price is P₁ is represented by A)areas B + D. B)areas A + B. C)areas C + D. D)area D.

Accepted Answer

Total revenue is equal to price times quantity. When the price is P1, the quantity demanded is Q1. Total revenue is therefore equal to P1 times Q1, which is represented by the area of rectangle B.

Question 20

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase total revenue?
A)0.9
B)0.0
C)1
D)2.5

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in its price. If the elasticity is greater than 1 (elastic), a decrease in price will increase total revenue because the percentage increase in quantity demanded is greater than the percentage decrease in price. Thus, an elasticity of 2.5 means the demand is elastic, and a decrease in price would increase total revenue.

Quiz 5: Elasticity and Its Application

Figure 5-2 -Refer to Figure 5-2. The section of the demand curve at point B represents the

Suppose demand is perfectly inelastic, and the supply of the good in question decreases. As a result,

Figure 5-5 -Refer to Figure 5-5. Using the midpoint method, the price elasticity of demand between point X and point Y is

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

Figure 5-2 -Refer to Figure 5-2. If the price decreases in the region of the demand curve between points B to A, we can expect total revenue to

Figure 5-3 -Refer to Figure 5-3. The maximum value of total revenue corresponds to a price of

Figure 5-3 -Refer to Figure 5-3. At a price of $60 per unit, sellers' total revenue equals

Figure 5-5 -Refer to Figure 5-5. If the price decreased from $36 to $12, total revenue would

Hailey says that she would smoke one pack of cigarettes each day regardless of the price. If she is telling the truth, Hailey's

If the demand for donuts is inelastic, then an increase in the price of donuts will

Figure 5-4 -Refer to Figure 5-4. If rectangle D is larger than rectangle A, then which of the following is not correct?

Skip's Sealcoating Service increased its total monthly revenue from $12,000 to $13,500 when it raised the price of driveway repairs from $600 to $750. The price elasticity of demand for Skip's Sealcoating Service is

Figure 5-3 -Refer to Figure 5-3. Using the midpoint method, between prices of $10 and $20, price elasticity of demand is about

Elasticity of demand is closely related to the slope of the demand curve. The more responsive buyers are to a change in price, the

Demarcus says that he will spend exactly $25 each month on new apps for his mobile device, regardless of the price of apps. Demarcus's demand for apps is

When small changes in price lead to infinite changes in quantity demanded, demand is perfectly

You are in charge of the local city-owned aquatic center. You need to increase the revenue generated by the aquatic center to meet expenses. The mayor advises you to increase the price of a day pass. The city manager recommends reducing the price of a day pass. You realize that

Figure 5-4 -Refer to Figure 5-4. Total revenue when the price is P₁ is represented by

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