Question 1

Within different price ranges along a linear demand curve, elasticities are:
A) constant.
B) different.
C) equal.
D) the same as slope.
E) negative 1.

Accepted Answer

Elasticities will differ at different points along a linear demand curve because elasticity is a function of the slope of the curve at that point, and the slope changes along the curve. Therefore, the elasticity will be different at different points.

Question 2

Which statement about price elasticity of demand along a linear demand curve is true ?
A) As the quantity demanded increases, so does the buyer's sensitivity to price.
B) When price elasticity of demand is equal to 1, consumers are indifferent to subtle price changes.
C) The ratio of current price to quantity demanded is a good estimate of the elasticity of demand.
D) As the prices of goods increase, the elasticity of demand increases.
E) When an individual buys 4 units of a good his/her elasticity of demand for each unit increases.

Accepted Answer

The answer of Which statement about price elasticity of demand...

Question 3

On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:
A) is impossible.
B) will increase total revenue.
C) will decrease total revenue.
D) raises the price elasticity of demand.
E) decreases quantity demanded.

Accepted Answer

On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price will result in a proportionately smaller increase in quantity demanded. Therefore, the decrease in price will not be enough to offset the decrease in revenue from selling the product at a lower price. This means that total revenue will decrease as a result of the price decrease.

Question 4

Looking at the relationship between elasticity and total revenue, we can see that ____.
A) b and c
B) when demand is unit elastic, small price changes don't change total revenue
C) when a good is price inelastic, revenue increases when prices increase
D) when a good is price elastic, revenue increases when prices increase
E) total revenue is maximized when the elasticity has stopped changing

Accepted Answer

The answer of Looking at the relationship between elasticity and...

Question 5

It is Valentine's Day and Jason is desperately looking all over town for a dozen roses to give to Judy. Most likely, Jason's price elasticity of demand is:
A) infinitely large.
B) negative.
C) equal to one.
D) greater than one.
E) less than one.

Accepted Answer

The fact that Jason is desperately looking for roses indicates that he has a strong desire or need for them, which suggests that his demand for roses is relatively inelastic. Additionally, since he is specifically looking for a dozen roses, it is likely that he has a specific quantity in mind that he wants to purchase, further supporting the idea of inelastic demand. Therefore, his price elasticity of demand is likely less than one.

Question 6

Dana is an art historian who needs to travel to Italy to do research. Art historians usually don't have a lot of money, and therefore are very sensitive to price changes. Dana's funding agency pays her a fixed amount to travel. At current exchange rates, Dana can stay in Italy for 35 days. If the exchange rate improves by 10 percent, she can stay for 40 days. What is Dana's price elasticity of demand for days spent in Italy?
A) It is approximately equal to 2.3.
B) It is approximately equal to 1.6.
C) It is approximately equal to 1.4.
D) It is approximately equal to 0.4.
E) It is approximately equal to 0.1.

Accepted Answer

Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. It can be calculated using the following formula:

PED = percentage change in quantity demanded / percentage change in price

In this case, we can use the information given to calculate PED as follows:

Initial price = 1 unit of funding
Initial quantity = 35 days
New price = 0.9 units of funding
New quantity = 40 days

Percentage change in quantity demanded = (new quantity - initial quantity) / initial quantity = (40 - 35) / 35 = 0.143 (or 14.3%)
Percentage change in price = (new price - initial price) / initial price = (0.9 - 1) / 1 = -0.1 (or -10%)

PED = 0.143 / -0.1 = -1.43

Since price elasticity of demand is usually reported as a positive value, we can take the absolute value of the result to get:

PED = 1.43

Since PED is greater than 1, we can say that Dana's demand for days spent in Italy is elastic. This means that a 10% decrease in price (or increase in exchange rate) leads to a more than proportionate increase in the quantity of days demanded (from 35 to 40). The closer PED is to infinity, the more elastic the demand. In this case, the answer closest to PED 1.43 is C.

Question 7

Elasticity has which special meaning for economists?
A) b and c.
B) A ratio of percentage changes.
C) How easily prices adjust to market changes.
D) How price changes as quantities demanded change.
E) When consumers will no longer react to price changes.

Accepted Answer

Elasticity has a special meaning for economists as it refers to the ratio of percentage changes, particularly how quantities demanded change as prices change.

Question 8

One of the reasons that price elasticities of demand are always stated as positive numbers is because:
A) the numerators and denominators of the formula are both negative.
B) the numerators and denominators of the formula are both positive.
C) price increases always lead to increases in quantity demanded.
D) price decreases always lead to decreases in quantity demanded.
E) price elasticities are always negative, so we ignore the sign.

Accepted Answer

The answer of One of the reasons that price elasticities...

Question 9

The short-run price elasticity of demand for airline travel is .05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:
A) collect less revenue from short-notice travelers.
B) collect more revenue from travelers who book well in advance.
C) lose money on short-notice travelers.
D) collect less revenue from travelers who book well in advance.
E) lose many of its short-notice travelers.

Accepted Answer

The short-run price elasticity of demand for airline travel is low at .05, meaning that a significant increase in airline ticket prices will not cause a large decrease in demand. However, in the long-run, the elasticity increases to 2.36, indicating that consumers have more options and can switch to alternative modes of transportation or adjust their travel plans to avoid high prices. Therefore, airline companies will collect less revenue from travelers who book well in advance, as they are more price-sensitive and have more alternative travel options available to them.

Question 10

Exhibit 5-2  Price and quantity demanded data  The data in Exhibit 5-2 shows that price elasticity of demand is:
A) increasing as the price decreases.
B) decreasing as the price increases.
C) increasing as the quantity increases.
D) decreasing as the quantity decreases.
E) decreasing as the quantity increases.

Accepted Answer

The answer of Exhibit 5-2  Price and quantity demanded data ...

Question 11

A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:
A) the demand curve is horizontal, reflecting infinite price elasticity.
B) the company sells the same number of bus tickets both before and after the price change.
C) the demand curve for bus tickets must have shifted to the right.
D) the firm is operating in a range of the demand curve that is unit elastic.
E) the price should be lowered further so that a larger quantity can be sold.

Accepted Answer

The answer of A public transit company finds that when...

Question 12

Exhibit 5-2  Price and quantity demanded data  Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?
A) 1.
B) 1.25.
C) 0.8.
D) 2.0.
E) 0.4.

Accepted Answer

The answer of Exhibit 5-2  Price and quantity demanded data ...

Question 13

If demand is price elastic, then when price decreases, total revenue:
A) decreases.
B) increases.
C) does not change.
D) is less than one.
E) is negative.

Accepted Answer

If demand is price elastic, a decrease in price will lead to a proportionately larger increase in quantity demanded. This means that total revenue (price multiplied by quantity) will increase as a result of the price decrease, leading to an increase in revenue.

Question 14

Sally is an average shopper, with average income. When she is in the store she buys a few items which cost more than $20, several items which cost between $5 and $20, and many items which cost less than $1. The price elasticity of Sally's demand for these goods most likely ____.
A) increases as the price decreases
B) decreases as the price decreases
C) increases as the price increases
D) decreases as the price increases
E) remains constant over all price ranges

Accepted Answer

The answer of Sally is an average shopper, with average...

Question 15

An economist estimates that .67 is the price elasticity of demand for disposable diapers. This suggests that disposable diaper producers could:
A) advertise more to raise the price elasticity of demand.
B) encourage more parents to use cloth diapers.
C) lower the price of disposable diapers to raise more revenue.
D) raise the price of disposable diapers to raise more revenue.
E) maximize revenues by staying at the current price.

Accepted Answer

The answer of An economist estimates that .67 is the...

Question 16

A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $40. The price elasticity of demand for memberships at this health club is (using the average values method):
A) 0.25.
B) 0.6.
C) 1.0.
D) 1.1.
E) 0.83

Accepted Answer

The answer of A health club sells 50 memberships when...

Question 17

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:
A) demand is price inelastic.
B) total revenue increases.
C) demand is positively sloped.
D) demand is unit elastic.
E) total revenue

Accepted Answer

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

Question 18

If demand for a good is price elastic, then the price elasticity will be:
A) equal to one.
B) equal to zero.
C) greater than one.
D) less than one.
E) less than zero.

Accepted Answer

If demand for a good is price elastic, it means that a small change in price leads to a proportionally larger change in quantity demanded. So, the price elasticity will be greater than one.

Question 19

Larissa is a famous attorney with a great reputation in court. She charges her clients $300 for each hour she spends working on their cases. If she earned $450,000 in hourly wages last year, and by raising her rates to $350 per hour her income increased to $490,000 what can we say about the elasticity of demand for Larissa's legal services?
A) It is approximately equal to 2.3.
B) It is approximately equal to 1.6.
C) It is approximately equal to 1.0.
D) It is approximately equal to 0.45.
E) It is approximately equal to 0.1.

Accepted Answer

The answer of Larissa is a famous attorney with a...

Question 20

Which of the following statements is true ?
A) b and d.
B) Total revenue is maximized when elasticity is one.
C) Goods are said to be price inelastic when the elasticity is greater than two.
D) Demand for milk is more elastic than demand for football tickets.
E) Demand for 5-cent candy is more elastic than demand for sweaters.

Accepted Answer

Total revenue is maximized when the price elasticity of demand is equal to one, meaning that the percentage change in quantity demanded is equal to the percentage change in price.

Quiz 5: Price Elasticity of Demand

Within different price ranges along a linear demand curve, elasticities are:

Which statement about price elasticity of demand along a linear demand curve is true ?

On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:

Looking at the relationship between elasticity and total revenue, we can see that ____.

It is Valentine's Day and Jason is desperately looking all over town for a dozen roses to give to Judy. Most likely, Jason's price elasticity of demand is:

Elasticity has which special meaning for economists?

One of the reasons that price elasticities of demand are always stated as positive numbers is because:

The short-run price elasticity of demand for airline travel is .05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:

Exhibit 5-2 Price and quantity demanded data The data in Exhibit 5-2 shows that price elasticity of demand is:

A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:

Exhibit 5-2 Price and quantity demanded data Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

If demand is price elastic, then when price decreases, total revenue:

Sally is an average shopper, with average income. When she is in the store she buys a few items which cost more than $20, several items which cost between $5 and $20, and many items which cost less than $1. The price elasticity of Sally's demand for these goods most likely ____.

An economist estimates that .67 is the price elasticity of demand for disposable diapers. This suggests that disposable diaper producers could:

A health club sells 50 memberships when the monthly price is $60 and 70 memberships when the monthly price is $40. The price elasticity of demand for memberships at this health club is (using the average values method) :

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:

If demand for a good is price elastic, then the price elasticity will be:

Which of the following statements is true ?