Question 1

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card,even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

Accepted Answer

The answer of Why do many film processing companies have...

Question 2

Price elasticity of demand measures
A) how responsive suppliers are to price changes.
B) how responsive sales are to changes in the price of a related good.
C) how responsive quantity demanded is to a change in price.
D) how responsive sales are to a change in buyers' incomes.

Accepted Answer

Price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. It is an indicator of how sensitive consumers are to changes in price. Option A is incorrect because it refers to price elasticity of supply, which measures how responsive suppliers are to changes in price. Option B is incorrect because it refers to cross-price elasticity of demand, which measures the responsiveness of the demand for one good to changes in the price of another good. Option D is incorrect because it refers to income elasticity of demand, which measures the responsiveness of quantity demanded to a change in buyers' incomes.

Question 3

Perfectly inelastic demand is represented by a demand curve which is ________,and relatively inelastic demand is represented by a demand curve which is ________.
A) downward sloping; vertical
B) horizontal; downward sloping
C) vertical; downward sloping
D) upward sloping; horizontal

Accepted Answer

Perfectly inelastic demand means that the quantity demanded remains constant regardless of changes in price. This is represented by a vertical demand curve. Relatively inelastic demand means that the percentage change in price results in a smaller percentage change in quantity demanded, which is represented by a relatively steep (or downward sloping) demand curve.

Question 4

Figure 7-4
 
-Refer to Figure 7-4.The demand curve on which elasticity changes at every point is given in
A) Panel A.
B) Panel B.
C) Panel C.
D) none of the above graphs.

Accepted Answer

Panel C represents a linear demand curve where elasticity changes at every point along the curve.

Question 5

Some online penny auctions charge a fee,such as $1,for every bid placed.Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

Accepted Answer

The answer of Some online penny auctions charge a fee,such...

Question 6

If demand is perfectly inelastic,the absolute value of the price elasticity of demand is
A) zero.
B) less than one.
C) more than one.
D) equal to the absolute value of the slope of the demand curve.

Accepted Answer

If demand is perfectly inelastic, it means that quantity demanded does not change at all in response to a change in price. This implies that the percentage change in quantity demanded is zero, while the percentage change in price can be positive. Therefore, the absolute value of the price elasticity of demand (which is the percentage change in quantity demanded divided by the percentage change in price) is zero.

Question 7

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3,then quantity demanded
A) will increase by 45 percent.
B) will increase by 5 percent.
C) will decrease by 45 percent.
D) will decrease by 5 percent.

Accepted Answer

According to the formula of price elasticity of demand, % change in quantity demanded = % change in price × price elasticity of demand. 
Here, % change in price = 15% (given)
Price elasticity of demand = -3 (given)
So, % change in quantity demanded = 15% × (-3) = -45%
This means that quantity demanded will decrease by 45%. Therefore, option C is correct.

Question 8

Figure 7-5
 
-Refer to Figure 7-5.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?
A) $50
B) $40
C) $30
D) $20

Accepted Answer

Since the absolute value of the price elasticity of demand at points a and b is 1, it means that the percentage change in quantity demanded is the same as the percentage change in price. Therefore, we can use the midpoint formula to calculate Pb:
(Pa - Pb) / ((Pa + Pb) / 2) = 1
(Pa - Pb) = (Pa + Pb) / 2
2Pa - 2Pb = Pa + Pb
Pa = 3Pb
Since Pa is $120, we can calculate Pb:
Pa = 3Pb
$120 = 3Pb
Pb = $40
Therefore, the answer is B) $40.

Question 9

A construction project in Congressman Foghorn's district is unfinished.Foghorn has asked that a new appropriations bill include funds to complete the project,despite a report by an independent agency that the project is a waste of taxpayer money.Foghorn's project is a bridge that crosses a river between two cities in his district.The press has criticized Foghorn and dubbed the project "a bridge too far" since another bridge,located closer to the same two cities Foghorn's bridge will connect,already exists and can accommodate all traffic between the two cities.Foghorn argues that if the bridge project is not completed,the $50 million already spent will have been wasted.Is Foghorn's argument economically rational? Explain your answer.

Accepted Answer

The answer of A construction project in Congressman Foghorn's district...

Question 10

Behavioral economists examine choices that consumers make that are not economically rational.Economists generally assume that people are rational; that is,they weigh the benefits and costs of an action and choose an action only if the benefits outweigh the costs.Why do consumers not act rationally when the result is that they make themselves worse off?

Accepted Answer

The answer of Behavioral economists examine choices that consumers make...

Question 11

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15,what is the absolute value of the price elasticity of demand? Use the midpoint formula.
A) 0.17
B) 0.62
C) 1.62
D) 5

Accepted Answer

The answer of If 50 units are sold at a...

Question 12

Molly received an autographed poster of David Hasselhoff for her 21st birthday.Her friend Helga offered her $50 for the poster,but Molly refused to sell the poster even though she knows she would never pay that much to replace it if it was ever damaged or destroyed.Explain this inconsistency in Molly's behavior.

Accepted Answer

The answer of Molly received an autographed poster of David...

Question 13

If demand is inelastic,the absolute value of the price elasticity of demand is
A) one.
B) less than one.
C) greater than one.
D) greater than the absolute value of the slope of the demand curve.

Accepted Answer

If demand is inelastic, it means that the percentage change in quantity demanded is less than the percentage change in price. Therefore, the absolute value of the price elasticity of demand will be less than one.

Question 14

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information,what can you conclude about her price elasticity of demand for wool hand warmers?
A) It is elastic.
B) It is perfectly elastic.
C) It is perfectly inelastic.
D) The price elasticity coefficient is 0.

Accepted Answer

The answer of Jenna runs a small boutique in Capitola.She...

Question 15

The price elasticity of demand for Stork ice cream is -4.Suppose you're told that following a price increase,quantity demanded fell by 10 percent.What was the percentage change in price that brought about this change in quantity demanded?
A) 40 percent
B) 25 percent
C) 2.5 percent
D) 0.4 percent

Accepted Answer

The answer of The price elasticity of demand for Stork...

Question 16

Figure 7-4
 
-Refer to Figure 7-4.A perfectly inelastic demand curve is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.

Accepted Answer

Panel A shows a perfectly inelastic demand curve, which means that no matter what the price is, the quantity demanded remains the same. This is represented by a vertical demand curve, as shown in Panel A.

Question 17

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons.What is the absolute value of the price elasticity of demand?
A) 0.11
B) 0.37
C) 2.69
D) 9.33

Accepted Answer

Price elasticity of demand = (Percentage change in quantity demanded) / (Percentage change in price)
Percentage change in price = ((New price - Old price) / Old price) x 100 = ((180 - 120) / 120) x 100 = 50%
Percentage change in quantity demanded = ((New quantity - Old quantity) / Old quantity) x 100 = ((240-800) / 800) x 100 = -70%
So, price elasticity of demand = |-70% / 50%| = 1.4
Absolute value of price elasticity of demand =  | 1.4 | = 2.69.
Therefore, the answer is C.

Question 18

Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information,what can you conclude about his price elasticity of demand for protein powder?
A) It is elastic.
B) It is perfectly elastic.
C) It is perfectly inelastic.
D) The price elasticity coefficient is 1.

Accepted Answer

Seth's statement indicates that he has a strong preference for consuming protein powder and does not consider substitutes for this particular product. This suggests that his demand for protein powder is highly inelastic, as he is willing to pay the price necessary to obtain his daily package of protein powder.

Question 19

Figure 7-4
 
-Refer to Figure 7-4.A perfectly elastic demand curve is shown in
A) Panel A.
B) Panel B.
C) Panel C.
D) Panel D.

Accepted Answer

The answer of Figure 7-4
 
-Refer to Figure 7-4.A perfectly...

Question 20

Suppose the value of the price elasticity of demand is -3.What does this mean?
A) A 1 percent increase in the price of the good causes quantity demanded to increase by 3 percent.
B) A 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.
C) A 3 percent increase in the price of the good causes quantity demanded to decrease by 1 percent.
D) A $1 increase in price causes quantity demanded to fall by 3 units.

Accepted Answer

A negative value for price elasticity of demand indicates an inverse relationship between the price of a good and the quantity demanded. Specifically, a price elasticity of -3 means that a 1 percent increase in the price of the good causes quantity demanded to decrease by 3 percent.

Quiz 7: Consumer Choice and Elasticity

Why do many film processing companies have a policy of printing every picture on a roll of film or a memory card,even if the picture is very fuzzy and customers are allowed to ask for refunds on any pictures they do not like?

Price elasticity of demand measures

Perfectly inelastic demand is represented by a demand curve which is ,and relatively inelastic demand is represented by a demand curve which is .

Figure 7-4 -Refer to Figure 7-4.The demand curve on which elasticity changes at every point is given in

Some online penny auctions charge a fee,such as $1,for every bid placed.Why should these costs of $1 per bid be considered sunk costs? Would it be smart for someone who has "already invested $5 in bidding costs" to keep bidding to "protect his or her sunk investments"? Why or why not?

If demand is perfectly inelastic,the absolute value of the price elasticity of demand is

If the percentage increase in price is 15 percent and the value of the price elasticity of demand is -3,then quantity demanded

Figure 7-5 -Refer to Figure 7-5.The absolute value of the price elasticity of demand at points a and b is 1.What is the value of Pb?

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15,what is the absolute value of the price elasticity of demand? Use the midpoint formula.

If demand is inelastic,the absolute value of the price elasticity of demand is

Jenna runs a small boutique in Capitola.She tells one of her suppliers that she is willing to pay $6 for a pair of wool hand warmers and not a dime more.On the basis of this information,what can you conclude about her price elasticity of demand for wool hand warmers?

The price elasticity of demand for Stork ice cream is -4.Suppose you're told that following a price increase,quantity demanded fell by 10 percent.What was the percentage change in price that brought about this change in quantity demanded?

Figure 7-4 -Refer to Figure 7-4.A perfectly inelastic demand curve is shown in

Suppose a hurricane decreased the supply of oranges so that the price of oranges rose from $120 a ton to $180 a ton and quantity sold decreased from 800 tons to 240 tons.What is the absolute value of the price elasticity of demand?

Seth is a competitive body builder.He says he has to have his 12-oz package of protein powder to "feed his muscles" every day.On the basis of this information,what can you conclude about his price elasticity of demand for protein powder?

Figure 7-4 -Refer to Figure 7-4.A perfectly elastic demand curve is shown in

Suppose the value of the price elasticity of demand is -3.What does this mean?