Question 1

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...

Question 2

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

The study shows that demand elasticity is less than 1 (0.91), which means that an increase in tuition would not result in a proportional decrease in enrollment. In other words, a tuition increase would not deter enough students from enrolling to offset the revenue gained from the increase. Therefore, the administration should choose to increase tuition to generate more revenue and balance the budget.

Question 3

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

In a situation where total revenue decreases by more than the percentage increase in price, demand is said to be elastic. This means that consumers are very sensitive to changes in price and as such, an increase in price would lead to a significant decrease in demand, resulting in a decrease in revenue.

Question 4

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 airlines assume that as the departure time approaches, consumers become more inelastic in their demand for the airline tickets. This means that consumers are less price-sensitive and more willing to pay higher prices for the ticket as their travel date nears.

Question 5

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 6

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

The answer of Suppose Microsoft announces it is cutting the...

Question 7

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, it means that consumers are price sensitive and will reduce their quantity demanded significantly in response to even small price increases. Therefore, if the price of apples increases, the total expenditures on apples will decline as consumers will switch to cheaper substitutes or reduce their consumption of apples.

Question 8

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 answer of Tele-Com, Inc., a large cable TV company,...

Question 9

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

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

Question 10

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 answer of A 20 percent increase in the price...

Question 11

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

The fact that a 10 percent rise in airfares leads to only a 5 percent increase in total expenditures on air travel indicates that demand is inelastic in this range. If demand were elastic, we would expect a larger decrease in the quantity demanded in response to the price increase, leading to a greater decrease in total expenditures. The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, the price elasticity would be (5%)/(10%) = 0.5, indicating inelastic demand.

Question 12

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

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

Question 13

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 revenue, they must believe that student demand for education is relatively insensitive to changes in tuition prices, which implies that demand is inelastic.

Question 14

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 demand is elastic, a change in price leads to a proportionally larger change in quantity demanded. Therefore, when price increases, the total spending on the good decreases.

Question 15

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 16

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, price and total revenue move in the same direction. This means that when the price increases, the total revenue also increases and when the price decreases, the total revenue also decreases, but to a lesser extent. This is because the quantity demanded does not change significantly with a change in price, so the change in revenue is primarily due to the change in price.

Question 17

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 18

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

When the price of pizza is reduced by 15 percent and the total revenue from pizza sales increases, it indicates that the demand for pizza is elastic. This means that a small change in price has a significant impact on the quantity demanded. If the demand were inelastic, a decrease in price would result in a smaller increase in quantity demanded, and the total revenue would either remain the same or decrease. A unitary elastic demand implies that a change in price results in an equivalent change in quantity demanded, which would not necessarily result in an increase in revenue. 0.15 is not a valid option as it is a numerical value and cannot represent price elasticity of demand.

Question 19

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

The answer of An increase in the price of computer...

Question 20

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 for electricity and natural gas is inelastic, it means that consumers are not very responsive to the price changes and will continue to consume these goods at almost the same amount regardless of the rate increase. In this scenario, the city can raise prices and increase revenue without losing many customers. However, if demand is elastic, consumers will reduce their consumption significantly due to the price rise, and the city may actually see a decrease in revenue. Negative elasticity and elasticity equal to -1 are not relevant concepts in this context.

Quiz 7: Consumer Choice and Elasticity

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

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

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

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

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

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

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?

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

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?

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?

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

When demand is price inelastic,

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

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

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?

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