Question 1

The price elasticity of demand for corn is 0.4. A new hybrid of corn is discovered and all farmers start to use it, which increases the quantity of corn they can produce from each acre. What happens to the farmers' total revenue?

Accepted Answer

The price elasticity of demand for corn is inelastic (less than 1), meaning that the percentage change in quantity demanded is less than the percentage change in price. When supply increases, the price will decrease, and since demand is inelastic, the total revenue will decrease.

Question 2

Suppose Sandy's Candies wants to increase its total revenues. If Sandy increases the price of her candy, she must be assuming that the demand for candy is

Accepted Answer

If Sandy increases the price of her candy and expects total revenues to increase, she must be assuming that the demand for candy is inelastic. This means that the percentage decrease in quantity demanded will be less than the percentage increase in price, leading to an increase in total revenue.

Question 3

If an increase in price results in no change in total revenue, then demand must be

Accepted Answer

When demand is unit elastic, a change in price does not affect total revenue because the percentage change in quantity demanded is exactly equal to the percentage change in price.

Question 4

The marketing people for AT&T believe that if they lower the price of long-distance phone calls by 5 percent, their quantity demanded will increase by 15 percent. If they are correct in their belief, then

Accepted Answer

If the quantity demanded increases by a greater percentage than the price decreases, the demand is price elastic, leading to an increase in total revenue when the price is lowered.

Question 5

When Monica's Catering lowered the price of catered meals from $60 per person to $20 per person, the quantity demanded doubled from 500 meals to 1,000 meals. You can conclude that the demand for Monica's catered meals over the price range of $20 to $60 is

Accepted Answer

The answer of When Monica's Catering lowered the price of...

Question 6

Total revenue received by surfboard manufacturers increases by $2 million when the price of a surfboard decreases by $10. The price the elasticity of demand for surfboards is

Accepted Answer

The increase in total revenue when the price decreases indicates that the demand is elastic, meaning the price elasticity of demand is greater than 1.

Question 7

If the total revenue received by sellers of DVDs increases by 20 percent when price increases by 10 percent, then demand for DVDs is

Accepted Answer

When the price increases and total revenue also increases, it indicates that the demand is inelastic. This is because consumers are not significantly reducing their quantity demanded in response to the price increase.

Question 8

Suppose Carol's Candid Cameras wants to increase its total revenue. If the firm lowers the price of cameras by 2 percent, Carol must be predicting that the quantity

Accepted Answer

To increase total revenue by lowering prices, Carol must expect that the demand is elastic, meaning the quantity demanded will increase by more than the percentage decrease in price.

Question 9

If demand for Farmer John's maple syrup is inelastic, then when Farmer John raises the price of maple syrup, his total revenue will

Accepted Answer

When demand is inelastic, consumers are not very responsive to price changes, so an increase in price leads to an increase in total revenue.

Question 10

The price elasticity of demand for wheat is 0.42. A drought cuts the supply of wheat. What will happen to the farmers' total revenue?

Accepted Answer

The price elasticity of demand for wheat is inelastic (less than 1), meaning that the percentage change in quantity demanded is less than the percentage change in price. When supply decreases due to a drought, the price of wheat will rise, and because demand is inelastic, the total revenue will increase.

Question 11

Suppose Clem's Chemical Company wants to increase its total revenue. If there are few substitutes for Clem's Chemicals

Accepted Answer

When there are few substitutes, the demand is likely inelastic, meaning consumers are less sensitive to price changes. Increasing the price can lead to higher total revenue.

Question 12

If OPEC, a group of oil producing nations, cuts oil production to increase the total revenue, OPEC presumes that the demand for oil is

Accepted Answer

If OPEC cuts oil production to increase total revenue, it presumes that the demand for oil is inelastic, meaning that consumers will not significantly reduce their quantity demanded despite higher prices, leading to higher total revenue.

Question 13

The marketing people at Ben and Jerry's Ice Cream Company believe that if they lower the price of their Cherry Garcia flavor ice cream by 25 percent, the quantity demanded will increase by 5 percent. If they are correct in their belief, then

Accepted Answer

The demand is price inelastic because the percentage change in quantity demanded (5%) is less than the percentage change in price (25%). When demand is inelastic, lowering the price decreases total revenue.

Question 14

If a 20 percent decrease in the price of a good leads to a 15 percent increase in the quantity demanded, then demand is ________ and total revenue will ________ as a result of the fall in price.

Accepted Answer

The demand is inelastic because the percentage change in quantity demanded (15%) is less than the percentage change in price (20%). In such cases, total revenue decreases when the price falls.

Question 15

A university conducts a survey of students, which shows that a 10 percent tuition hike would lead to a 7 percent decrease in the enrollment. If the university wants to increase its total revenue, it should ________ tuition because the demand for education at this university is ________.

Accepted Answer

The demand is inelastic because the percentage decrease in enrollment (7%) is less than the percentage increase in tuition (10%). Raising tuition would increase total revenue since the loss in revenue from fewer students is less than the gain from higher tuition per student.

Question 16

If the demand for a good is unit elastic

Accepted Answer

When demand is unit elastic, the percentage change in quantity demanded is equal to the percentage change in price, so total revenue remains unchanged.

Question 17

A university conducts a survey of students, which shows that a 10 percent tuition hike would lead to a 12 percent decrease in the enrollment. If the university wants to increase its total revenue, it should ________ tuition because the demand for education at this university is ________.

Accepted Answer

The demand is elastic because the percentage decrease in enrollment (12%) is greater than the percentage increase in tuition (10%). Raising tuition would decrease total revenue.

Question 18

One year, the government boosted regulated taxi fares in New York City by 15 percent with the expectation that the total revenue from taxi rides would also increase by 15 percent. The taxi commission that authorized this fare increase must have believed that the demand for taxi service was

Accepted Answer

The answer of One year, the government boosted regulated taxi...

Question 19

The price of a bus ride decreases, and the total revenue of the bus company decreases. The demand for bus rides is

Accepted Answer

When the price decreases and total revenue also decreases, it indicates that the demand is inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price.

Question 20

The price elasticity of demand for gasoline is 0.40. If the price of gasoline rises by 20 percent, there will be

Accepted Answer

The price elasticity of demand of 0.40 indicates that demand is inelastic. When the price increases, total revenue increases because the percentage decrease in quantity demanded is less than the percentage increase in price.

Quiz 4: Elasticity