Question 1

If a 30 percent decline in the price of gasoline leads to a 15 percent rise in expenditures on gasoline, the price elasticity of demand for gasoline in this range must be
A) 2.
B) elastic.
C) 0.5.
D) inelastic.

Accepted Answer

The answer of If a 30 percent decline in the...

Question 2

Tele-Com, Inc., a large cable TV company, tested the effect of a price reduction for the Disney Channel. It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled. This means the
A) demand curve for the Disney Channel shifted to the right.
B) supply curve of the Disney Channel shifted to the left.
C) demand for the Disney Channel is elastic in this price range.
D) demand for the Disney Channel is inelastic in this price range.

Accepted Answer

The demand for the Disney Channel is elastic in this price range because the quantity demanded more than doubled when the price was reduced, indicating a high responsiveness to price changes.

Question 3

Which of the following describes a situation in which demand must be inelastic?
A) The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.
B) The price of pens rises by 10 cents, and total revenue rises.
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded.
D) Total revenue does not change when the price of pens rises.
E) Total revenue decreases when the price of pens rises.

Accepted Answer

When the price of a good rises and total revenue also rises, it indicates that demand is inelastic. This is because the percentage change in quantity demanded is less than the percentage change in price, leading to an increase in total revenue.

Question 4

If the price of apples increases, total expenditures on apples will decline if
A) the demand for apples is inelastic.
B) the demand for apples is elastic.
C) the quantity of apples purchased is unresponsive to changes in price.
D) there are few good substitutes for apples.

Accepted Answer

If the demand for apples is elastic, a price increase will result in a proportionately larger decrease in quantity demanded, leading to a decrease in total expenditures. In contrast, if the demand for apples is inelastic, a price increase will result in a proportionately smaller decrease in quantity demanded, and expenditures will increase despite the price increase. Therefore, the best choice is B.

Question 5

If a 10 percent rise in airfares leads to a 5 percent increase in total expenditures on air travel, the price elasticity of demand for air travel in this range must be
A) 2.
B) elastic.
C) 0.5.
D) inelastic.

Accepted Answer

A 10 percent rise in airfares leads to only a 5 percent increase in total expenditures, which means that the demand for air travel is relatively inelastic in this range as the change in price did not significantly affect the quantity demanded. Therefore, the price elasticity of demand must be less than 1, indicating inelastic demand.

Question 6

Which of the following describes a situation in which demand must be elastic?
A) Total revenue increases by 15 percent when the price of corndogs rises by 15 percent.
B) Total revenue increases by less than 15 percent when the price of corndogs rises by 15 percent.
C) Total revenue decreases by more than 15 percent when the price of corndogs rises by 15 percent.
D) Total revenue increases by $15 when the price of corndogs rises by $15.
E) Total revenue increases by more than $15 when the price of corndogs rises by $15.

Accepted Answer

When the percentage change in price is greater than the percentage change in quantity demanded, demand is said to be elastic. This means that if the price of corndogs rises by 15 percent and the total revenue decreases by more than 15 percent, then the demand must be elastic.

Question 7

Which of the following describes a situation in which demand must be elastic?
A) The price of pens rises by 10 cents, and quantity of pens demanded falls by 50.
B) The price of pens rises by 10 cents, and total revenue rises.
C) A 20 percent increase in the price of pens leads to a 20 percent decrease in the quantity of pens demanded.
D) Total revenue does not change when the price of pens rises.
E) Total revenue decreases when the price of pens rises.

Accepted Answer

When demand is elastic, an increase in price leads to a decrease in total revenue, as the percentage drop in quantity demanded is greater than the percentage increase in price.

Question 8

New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase by the same amount. The taxi commission believed taxi demand was
A) unit elastic.
B) somewhat elastic.
C) perfectly elastic.
D) perfectly inelastic.
E) somewhat inelastic

Accepted Answer

The answer of New York City increased regulated taxi fares...

Question 9

An increase in the price of computer diskettes leads to an increase in total expenditures on the diskettes. Which of the following is true for this price change?
A) Computer diskettes are an inferior good.
B) The demand for computer diskettes is perfectly elastic.
C) The demand for computer diskettes is inelastic.
D) The demand for computer diskettes is elastic.

Accepted Answer

When the price increase leads to an increase in total expenditures, it indicates that the demand is inelastic, meaning consumers are not significantly reducing their quantity demanded despite the price increase.

Question 10

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is
A) elastic.
B) inelastic.
C) of unitary elasticity.
D) perfectly elastic.

Accepted Answer

If the board of regents plans to raise tuition in order to increase revenues, they must believe that student demand is inelastic. This means that even if tuition prices increase, students will still enroll in the university because they believe the benefits of a college education outweigh the costs. If demand were elastic, students would be more sensitive to changes in tuition prices and may choose to attend a different, more affordable university.

Question 11

In which of the following cases will the total spending on a good decrease?
A) Demand is inelastic, and price increases.
B) Demand is elastic, and price increases.
C) Demand is elastic, and price decreases.
D) Demand is of unit elasticity, and price decreases.

Accepted Answer

When the demand is elastic, even a slight increase in price leads to a significant decrease in quantity demanded. Therefore, the total spending on the good decreases when the price increases.

Question 12

A 20 percent increase in the price of sugar reduces sugar consumption by about 10 percent. Such a price increase causes households to
A) spend less on sugar.
B) spend more on sugar.
C) spend the same amount on sugar as before.
D) consume more goods like coffee and tea, which are sugar complements.

Accepted Answer

The price elasticity of demand for sugar is inelastic (less than 1), meaning the percentage decrease in quantity demanded is less than the percentage increase in price. Therefore, total expenditure on sugar increases.

Question 13

Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is
A) inelastic.
B) elastic.
C) negative.
D) equal to − 1.

Accepted Answer

If the elasticity of demand is inelastic, it means that consumers are not sensitive to price changes and will still continue to purchase the same amount of electricity and natural gas despite the price increase. Therefore, the city will be able to raise revenues by increasing its rates for electricity and natural gas. However, if the elasticity of demand is elastic, it means that consumers are sensitive to price changes and will reduce their consumption of electricity and natural gas in response to the price increase. This could lead to a decrease in city revenues instead of an increase. Therefore, option A is the best choice.

Question 14

If demand is inelastic, an increase in the price of a good will cause total expenditures on the good to
A) fall.
B) remain constant since the decrease in quantity sold is exactly offset by the price increase.
C) rise.
D) rise if it is a normal good and fall if it is an inferior good.

Accepted Answer

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

Question 15

When demand is price inelastic,
A) price and total revenue move in the same direction.
B) price and total revenue move in the opposite direction.
C) total revenue increases whether price goes up or down.
D) total revenue decreases whether price goes up or down.

Accepted Answer

When demand is price inelastic, consumers are willing to pay a higher price for the good or service and will continue to buy it even if the price increases. Therefore, as the price of the good or service increases, the quantity demanded does not decrease significantly. As a result, total revenue will move in the same direction as the price, meaning that if the price increases, total revenue will also increase, and if the price decreases, total revenue will decrease as well.

Question 16

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to
A) decrease tuition, which should boost enrollment enough to balance the budget.
B) decrease tuition, which would bring in more revenue.
C) leave tuition as is-an increase would not help balance the budget.
D) increase tuition, which would generate more revenue.

Accepted Answer

Since the demand elasticity is less than one (0.91), it means that an increase in tuition will decrease the enrollment, but not as much as the increase in tuition. Therefore, the revenue will increase with a tuition increase, and the revenue-maximizing decision is to increase tuition.

Question 17

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is
A) elastic.
B) inelastic.
C) of unitary elasticity.
D) perfectly inelastic.

Accepted Answer

If Microsoft is seeking to increase revenues by cutting prices, it implies that it believes that the demand for its products is elastic. Inelastic demand means that a decrease in price would not significantly increase demand, leading to a decrease in revenue rather than an increase. Unitary or perfectly inelastic demand would also not lead to an increase in revenue with a price cut.

Question 18

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that
A) consumers are not aware of airline prices.
B) consumer demand is unrelated to prices.
C) consumer demand becomes more elastic as departure time approaches.
D) consumer demand becomes more inelastic as departure time approaches.

Accepted Answer

The airline's assumption is that consumer demand becomes more inelastic as departure time approaches, meaning consumers are more willing to pay a higher price the closer it gets to their desired departure date.

Question 19

If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was
A) elastic.
B) of unitary elasticity.
C) inelastic.
D) equal to 0.15.

Accepted Answer

If the total revenue from pizza sales increases after a price reduction, it means that consumers are very responsive to changes in price, indicating that the price elasticity of demand is elastic.

Question 20

Which of the following describes a situation in which demand must be inelastic?
A) Total revenue decreases by 10 percent when the price of jeans rises by 10 percent.
B) Total revenue decreases by less than 10 percent when the price of jeans rises by 10 percent.
C) Total revenue increases by more than 10 percent when the price of jeans rises by 10 percent.
D) Total revenue decreases by $10 when the price of jeans rises by $10.
E) Total revenue decreases by more than $10 when the price of jeans rises by $10.

Accepted Answer

The answer of Which of the following describes a situation...

Quiz 7: Consumer Choice and Elasticity

If a 30 percent decline in the price of gasoline leads to a 15 percent rise in expenditures on gasoline, the price elasticity of demand for gasoline in this range must be

Tele-Com, Inc., a large cable TV company, tested the effect of a price reduction for the Disney Channel. It lowered prices from $10.75 to $7.95 and found that the number of customers more than doubled. This means the

Which of the following describes a situation in which demand must be inelastic?

If the price of apples increases, total expenditures on apples will decline if

If a 10 percent rise in airfares leads to a 5 percent increase in total expenditures on air travel, the price elasticity of demand for air travel in this range must be

Which of the following describes a situation in which demand must be elastic?

Which of the following describes a situation in which demand must be elastic?

New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase by the same amount. The taxi commission believed taxi demand was

An increase in the price of computer diskettes leads to an increase in total expenditures on the diskettes. Which of the following is true for this price change?

If the board of regents of a major state university system plans to raise tuition in order to increase revenues, the regents must believe student demand is

In which of the following cases will the total spending on a good decrease?

A 20 percent increase in the price of sugar reduces sugar consumption by about 10 percent. Such a price increase causes households to

Suppose a city that operates local electric and natural gas companies wants to raise revenues by increasing its rates for electricity and natural gas. The price rise will increase city revenues if the elasticity of demand for electricity and natural gas is

If demand is inelastic, an increase in the price of a good will cause total expenditures on the good to

When demand is price inelastic,

A recent study on enrollment at a liberal arts college concluded that demand elasticity is 0.91. The administration is considering a tuition increase to help balance the budget. The revenue-maximizing decision is to

Suppose Microsoft announces it is cutting the prices of some of its software titles (mainly games) by 25 percent. Assuming that Microsoft is seeking to increase revenues, it must believe that the elasticity of demand for these products is

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller. The airlines base the policy on the assumption that

If a Pizza Hut restaurant near campus reduces its pizza prices by 15 percent, and as a result, its total revenue from pizza sales increases, this indicates that the price elasticity of demand was

Which of the following describes a situation in which demand must be inelastic?