Question 1

When universities announce a large tuition increase and follow it with an announcement that more financial aid will be available, they are assuming that students who pay full tuition

Accepted Answer

This strategy assumes that students who can afford to pay full tuition will continue to do so despite the price increase (inelastic demand), while students who rely on financial aid are more price-sensitive and might be deterred by higher costs without additional aid (elastic demand).

Question 2

Which product is most likely to be the most price elastic?

Accepted Answer

The answer of Which product is most likely to be...

Question 3

The demand for a necessity whose cost is a small portion of one's total income is

Accepted Answer

The demand for a necessity, especially one that constitutes a small portion of one's total income, tends to be relatively price inelastic. This means that changes in price have a smaller effect on the quantity demanded, as consumers will continue to purchase these goods even if the price increases, due to their essential nature.

Question 4

Movie theaters charge lower prices to see a movie in the afternoon than in the evening because there is an

Accepted Answer

The demand to see movies in the afternoon is more elastic because consumers are more sensitive to price changes during this time, likely due to alternative ways they could spend their time. Lower prices are used to attract more viewers when demand is more price-sensitive.

Question 5

If sellers could price-discriminate and charge two different prices to two different groups of buyers in order to increase revenues, then the sellers would charge

Accepted Answer

Sellers would charge a higher price to buyers whose demand is inelastic because those buyers are less sensitive to price changes and are more likely to continue purchasing the product despite the higher price, thus increasing the seller's revenues.

Question 6

Which of the following is not characteristic of a product with relatively inelastic demand?

Accepted Answer

A product with relatively inelastic demand means that consumers' purchase quantity does not change much with price changes. This is less likely to be the case if there are many good substitutes (choice B), as consumers can easily switch to alternatives if the price of the product increases, making the demand more elastic. Choices A, C, and D are characteristics that contribute to inelastic demand.

Question 7

A state government wants to increase the taxes on cigarettes to increase tax revenue. Because cigarettes are addictive, we would expect its demand to be

Accepted Answer

Cigarettes have an inelastic demand because they are addictive, meaning consumers will continue to buy them even if the price increases. Therefore, when the government increases taxes on cigarettes, it can expect tax revenues to rise because the decrease in quantity demanded will be relatively small compared to the increase in price.

Question 8

If the government tightens up on drug dealers and raises the costs of dealing illegal drugs, then the drug addicts' dollar expenditures to feed their addiction will tend to

Accepted Answer

Drug addicts' demand for drugs tends to be price-inelastic, meaning their demand does not decrease significantly with an increase in price. Therefore, if the government raises the costs of dealing illegal drugs, the addicts will likely continue to purchase similar amounts, leading to an increase in their dollar expenditures.

Question 9

Considering the price-elasticity of demand for wheat, we would expect that if the supply of wheat increases, other factors constant, then wheat farmers' total revenues would

Accepted Answer

When demand is price-inelastic, an increase in supply (leading to a lower price) results in a less than proportional increase in quantity demanded, thus decreasing total revenue for wheat farmers.

Question 10

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; Good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from Good A to

Accepted Answer

Good A has many substitutes, so a price increase would likely lead to a decrease in quantity demanded, reducing total revenue. Good B takes up a large portion of budgets, so a price increase would likely lead to a significant decrease in quantity demanded, also reducing total revenue.

Question 11

The demand for a luxury good whose purchase would exhaust a big portion of one's income is

Accepted Answer

Luxury goods, especially those that consume a significant portion of one's income, tend to have relatively price elastic demand. This means that the quantity demanded changes significantly with a change in price, as consumers will cut back on or increase their purchases of these goods more readily in response to price changes compared to necessities.

Question 12

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; Good B makes up a significant portion of most families' budgets. From these facts, we would expect that the demand for Good A would be ______, while that of Good B would be________.

Accepted Answer

The answer of A firm produces and sells two goods,...

Question 13

The price elasticity of demand increases with the length of the period considered because

Accepted Answer

The price elasticity of demand tends to increase over time because consumers have more time to adjust their behavior and find substitutes for the product in question. This adjustment period allows for a greater response to price changes, making demand more elastic.

Question 14

An auto rental company lowers the price of its rentals to increase its market share. The price cut increases quantity demanded, but total revenue decreases. This result suggests that over this price range, the demand for the auto rentals is

Accepted Answer

When a price cut leads to a decrease in total revenue, it suggests that the demand is inelastic. Inelastic demand means that the percentage change in quantity demanded is less than the percentage change in price, resulting in a decrease in total revenue when prices are lowered.

Question 15

If the government imposes an excise tax on a good, it will collect the most tax revenues from it if the demand for the good is

Accepted Answer

When demand is inelastic, consumers are less sensitive to price changes, meaning they will continue to buy the good even as the price increases due to the tax. This results in higher tax revenues for the government.

Question 16

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that

Accepted Answer

The demand for a specific brand like Cheerios is more price-elastic compared to the demand for a broad category like cereals because there are more substitutes available for Cheerios. If the price of Cheerios increases, consumers can easily switch to other brands or types of cereal, making its demand more sensitive to price changes.

Question 17

What is the most likely effect of the development of rental movies and online movie streaming on the movie theater (or cinema)industry?

Accepted Answer

The development of rental movies and online movie streaming provides consumers with more alternatives to watching movies, making them more sensitive to changes in movie theater ticket prices. This sensitivity reflects an increased price elasticity of demand for movie theater tickets, as consumers can easily switch to watching movies at home if the prices at theaters go up.

Question 18

An increase in the price of tickets to a popular sporting event will increase total revenue if

Accepted Answer

The demand for tickets by fanatic fans is likely to be inelastic, meaning their quantity demanded doesn't decrease significantly with an increase in price. Therefore, increasing ticket prices in this scenario would increase total revenue because the decrease in quantity demanded is outweighed by the increase in price per ticket.

Question 19

Which of the following factors will make the demand for a product relatively elastic?

Accepted Answer

The demand for a product is more elastic over a longer time interval because consumers have more time to adjust their behavior and find substitutes if the price changes.

Question 20

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

Accepted Answer

Elastic demand means consumers are very sensitive to price changes, and will switch brands if one is cheaper. Statement A indicates the consumer views all brands as identical and chooses based on price, which is a classic example of elastic demand.

Quiz 6: Elasticity