Question 1

If the demand curve for a product was vertical, then the elasticity of demand would be:
A)​equal to zero.
B)​equal to one.
C)​greater than one, but less than infinity.
D)​equal to infinity.

Accepted Answer

When the demand curve is vertical, it means that the quantity demanded does not respond to changes in price. This is known as perfectly inelastic demand and has an elasticity of zero.

Question 2

A jeweler cut prices in his store by 20% and the dollar value of his sales fell by 20%. This is indicative of:
A)​elastic demand.
B)​inelastic demand.
C)​perfectly elastic demand.
D)​perfectly inelastic demand.

Accepted Answer

The answer of A jeweler cut prices in his store...

Question 3

​Exhibit 6-4 
-Refer to Exhibit 6-4. With reference to Graph A, at a price of $10, total revenue equals:
A)​$200.
B)​$400.
C)​$500.
D)​$1,000.

Accepted Answer

Total revenue is calculated by multiplying price by quantity. If the price is $10 and the quantity sold is 40 (as indicated by Graph A), total revenue equals $10 x 40 = $400.

Question 4

A subsidy to wheat farmers reduces the price of a bushel of wheat from $2.50 to $2 per bushel. The equilibrium quantity of wheat sold prior to the subsidy was equal to 200,000 bushels. Predict the new equilibrium quantity of wheat after the imposition of the subsidy given that the demand for wheat is known to be unit elastic.
A)​100,000 bushels
B)​200,000 bushels
C)​250,000 bushels
D)​400,000 bushels

Accepted Answer

The demand for wheat being unit elastic means that the percentage change in the quantity demanded will be equal to the percentage change in price. With the price reduction of $0.50 due to the subsidy, it represents a percentage change of 20% ($0.50/$2.50). Therefore, the quantity demanded will increase by 20% as well, leading to a new equilibrium quantity of 240,000 bushels [(1+0.20) * 200,000]. However, this is not the final answer as the subsidy will also affect the supply side. Due to the subsidy, producers will have an incentive to produce more wheat, which will shift the supply curve to the right, further increasing the quantity supplied and lowering the price. The final equilibrium quantity will be at the intersection of the new demand curve (which is still unit elastic) and the new supply curve. Based on the information given in the question, we cannot determine the exact shift in the supply curve, but we know that it will lead to an increase in quantity supplied and a decrease in price. Therefore, the only answer choice that is close to the initial calculation of 240,000 and also takes into account the supply side effect is C) 250,000 bushels.

Question 5

A "war on drugs" is waged, and, as a result, a larger quantity of drugs flowing into the United States is seized and more drug traffickers are arrested. If demand for drugs is inelastic, one would expect the total expenditure on drugs to:
A)​decrease.
B)​increase.
C)​stay constant.
D)​There is not enough information available to make a determination.

Accepted Answer

If demand for drugs is inelastic, then even if the supply is reduced through the efforts of the "war on drugs," the demand for drugs will remain relatively constant. This means that drug traffickers can charge higher prices for their products and still make sales. Therefore, even though more drugs are being seized and more traffickers are being arrested, the total expenditure on drugs is likely to increase because the prices of drugs may increase due to decreased supply.

Question 6

​Exhibit 6-4 
-Refer to Exhibit 6-4. Graph A represents a demand curve that is relatively ____in the range illustrated. Total revenue ____ as the price decreases from $10 to $5.
A)​inelastic; decreases
B)​elastic; decreases
C)​elastic; increases
D)​inelastic; increases

Accepted Answer

Graph A represents a demand curve that is relatively elastic in the range illustrated because a decrease in price from $10 to $5 leads to a proportionally larger increase in quantity demanded, resulting in an increase in total revenue.

Question 7

The Book Nook reduces prices by 20%. If the dollar value of The Book Nook's sales remain constant, it indicates that:
A)​the quantity of books sold remains constant.
B)​the demand curve is horizontal.
C)​the demand curve is vertical.
D)​the quantity of books sold increases by 20%.

Accepted Answer

If the price is reduced by 20% and the total sales value remains constant, it means that the quantity sold must have increased by 20% to offset the price reduction.

Question 8

If demand is unit elastic:
A)​Total revenue and prices rise and fall together.
B)​Total revenue rises as price falls.
C)​Total revenue falls as price rises.
D)​Total revenue remains constant as price rises or falls.

Accepted Answer

If demand is unit elastic, it means that the percentage change in quantity demanded is exactly equal to the percentage change in price. In such a case, the increase or decrease in price results in an equal decrease or increase in quantity demanded, leading to no change in total revenue. Therefore, total revenue remains constant as price rises or falls.

Question 9

A "war on drugs" is waged, and, as a result, a larger quantity of drugs flowing into the United States is seized and more drug traffickers are arrested. If demand for drugs is relatively elastic, one would expect the total expenditure on drugs to:
A)​decrease.
B)​increase.
C)​stay constant.
D)​There is not enough information available to make a determination.

Accepted Answer

If demand for drugs is relatively elastic, an increase in the price due to decreased supply (from the seizure of drugs and arrest of traffickers) would lead to decreased total expenditure on drugs. Thus, the "war on drugs" may lead to a decrease in the total expenditure on drugs.

Question 10

If most passenger trains operate far below full capacity and demand is ____, reducing travel fares would be likely to increase total revenue.
A)​inelastic
B)​unit elastic
C)​unit inelastic
D)​elastic

Accepted Answer

If demand is elastic, reducing fares would lead to an increase in the quantity demanded, resulting in an increase in revenue. This is because the increase in the number of passengers would more than offset the decrease in fares, resulting in a net increase in revenue.

Question 11

A jeweler cut prices in his store by 20%. As a result:
A)​Its total revenue would fall by 20% if the elasticity of demand was zero.
B)​Its total revenue would fall, but by less than 20% if the elasticity of demand is greater than zero but less than one.
C)​Its total revenue would rise if the elasticity of demand is greater than one.
D)​All of the above would be true.

Accepted Answer

A) With zero elasticity, demand doesn't change with price, so a 20% price cut directly reduces revenue by 20%. B) If demand is inelastic (elasticity between 0 and 1), a price cut increases quantity sold but not enough to offset the price reduction, so revenue falls but by less than 20%. C) With elastic demand (elasticity greater than 1), a price cut increases quantity sold by a proportion greater than the price reduction, raising total revenue.

Question 12

​Exhibit 6-4 
-Refer to Exhibit 6-4. With reference to Graph B, at a price of $5, total revenue equals:
A)​$200.
B)​$300.
C)​$250.
D)​$150.

Accepted Answer

At a price of $5, the quantity demanded is 40 units. Total revenue is equal to price multiplied by quantity, so total revenue is $5 x 40 = $200.

Question 13

Which of the following is associated with a more elastic demand curve?
A)​availability of many close substitutes
B)​a greater amount of time for consumers to respond to a price change
C)​a large percentage of income spent on the good in question
D)​all of the above

Accepted Answer

Availability of close substitutes gives consumers more options to choose from, making the demand for a specific product more elastic. A longer amount of time for consumers to respond to a price change allows them to search for alternatives, making demand more elastic. A large percentage of income spent on the good in question means that consumers are more likely to be sensitive to changes in price, making demand more elastic. Therefore, all of the given options are associated with a more elastic demand curve.

Question 14

If the demand curve for a product is horizontal, then the elasticity of demand is:
A)​equal to zero.
B)​equal to one.
C)​greater than one, but less than infinity.
D)​equal to infinity.

Accepted Answer

A horizontal demand curve indicates that the quantity demanded changes by a large amount in response to a very small change in price, which means the elasticity of demand is infinite. This reflects a perfectly elastic demand situation.

Question 15

When the price of ulcer medication increased by $20 per 100 tablets, a drug company's revenue increased by $10 million. Its elasticity of demand coefficient (in absolute terms) must be:
A)​zero.
B)​greater than one.
C)​less than one.
D)​infinitely large.

Accepted Answer

Elasticity of demand measures the responsiveness of the quantity demanded of a good to changes in its price. In this case, if the price of the ulcer medication increased by $20 per 100 tablets and the revenue of the drug company increased by $10 million, we know that the company sold an additional 500,000 boxes of the medication (since 500,000 boxes x $20 increase per box = $10 million increase in revenue).

To calculate the elasticity of demand coefficient (in absolute terms), we use the following formula:

Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

We know that the % change in price is +20% (since the price increased by $20 per box and the original price is not given), and the % change in quantity demanded is +5.26% (since the company sold an additional 500,000 boxes, and the original quantity sold is not given).

Therefore, the elasticity of demand coefficient (in absolute terms) is:

Elasticity of Demand = 5.26% / 20% = 0.263

Since this value is less than one, the demand for ulcer medication is considered inelastic, meaning that a change in price will result in a proportionately smaller change in quantity demanded.

Question 16

​Exhibit 6-4 
-Refer to Exhibit 6-4. Graph B represents a demand curve that is relatively ____in the range illustrated. Total revenue ____ as the price decreases from $10 to $5.
A)​inelastic; decreases
B)​elastic; decreases
C)​elastic; increases
D)​inelastic; increases

Accepted Answer

The answer of ​Exhibit 6-4 
-Refer to Exhibit 6-4. Graph...

Question 17

​Exhibit 6-4 
-Refer to Exhibit 6-4. With reference to Graph A, at a price of $5, total revenue equals:
A)​$200.
B)​$400.
C)​$500.
D)​$1,000.

Accepted Answer

At a price of $5, the quantity demanded is 100 units. Therefore, total revenue equals $5 x 100 = $500.

Question 18

Evaluate the following statements: 
I.The slope of the demand curve is always equal to the elasticity of demand.
II.Moving down along a downward-sloping, straight-line demand curve, the elasticity of demand falls.
​
A)​(I) and (II) are both true.
B)​(I) is true and (II) is false.
C)​(I) is false and (II) is true.
D)​(I) and (II) are both false.

Accepted Answer

I. The slope of the demand curve is not always equal to the elasticity of demand. The slope is a constant measure of the rate of change between price and quantity demanded, while elasticity of demand measures the percentage change in quantity demanded resulting from a percentage change in price, which can vary along the curve.II. Moving down along a downward-sloping, straight-line demand curve, the elasticity of demand indeed falls, moving from elastic through unit elastic to inelastic regions as we move from higher to lower points on the curve.

Question 19

Which of the following is associated with relatively elastic demand?
A)​Few substitutes; large portion of income; short time span
B)​Many substitutes; large portion of income; long time span
C)​Few substitutes; small portion of income; short time span
D)​Many substitutes; small portion of income; long time span

Accepted Answer

Elastic demand is associated with the availability of many substitutes, a large portion of income spent on the good, and a long time span for consumers to adjust their behavior.

Question 20

Which of the following is associated with a less elastic demand curve?
A)​availability of many close substitutes
B)​a greater amount of time for consumers to respond to a price change
C)​a smaller percentage of income spent on the good in question
D)​all of the above

Accepted Answer

A smaller percentage of income spent on the good in question is associated with a less elastic demand curve, as the consumer is less likely to change their purchasing behavior even with a change in price.

Quiz 6: Elasticities

If the demand curve for a product was vertical, then the elasticity of demand would be:

A jeweler cut prices in his store by 20% and the dollar value of his sales fell by 20%. This is indicative of:

Exhibit 6-4 -Refer to Exhibit 6-4. With reference to Graph A, at a price of $10, total revenue equals:

A "war on drugs" is waged, and, as a result, a larger quantity of drugs flowing into the United States is seized and more drug traffickers are arrested. If demand for drugs is inelastic, one would expect the total expenditure on drugs to:

Exhibit 6-4 -Refer to Exhibit 6-4. Graph A represents a demand curve that is relatively in the range illustrated. Total revenue as the price decreases from $10 to $5.

The Book Nook reduces prices by 20%. If the dollar value of The Book Nook's sales remain constant, it indicates that:

If demand is unit elastic:

A "war on drugs" is waged, and, as a result, a larger quantity of drugs flowing into the United States is seized and more drug traffickers are arrested. If demand for drugs is relatively elastic, one would expect the total expenditure on drugs to:

If most passenger trains operate far below full capacity and demand is ____, reducing travel fares would be likely to increase total revenue.

A jeweler cut prices in his store by 20%. As a result:

Exhibit 6-4 -Refer to Exhibit 6-4. With reference to Graph B, at a price of $5, total revenue equals:

Which of the following is associated with a more elastic demand curve?

If the demand curve for a product is horizontal, then the elasticity of demand is:

When the price of ulcer medication increased by $20 per 100 tablets, a drug company's revenue increased by $10 million. Its elasticity of demand coefficient (in absolute terms) must be:

Exhibit 6-4 -Refer to Exhibit 6-4. Graph B represents a demand curve that is relatively in the range illustrated. Total revenue as the price decreases from $10 to $5.

Exhibit 6-4 -Refer to Exhibit 6-4. With reference to Graph A, at a price of $5, total revenue equals:

Evaluate the following statements: I.The slope of the demand curve is always equal to the elasticity of demand. II.Moving down along a downward-sloping, straight-line demand curve, the elasticity of demand falls.

Which of the following is associated with relatively elastic demand?

Which of the following is associated with a less elastic demand curve?