Question 1

Figure 5-11 -Refer to Figure 5-11. Suppose this demand curve is a straight, downward-sloping line all the way from the horizontal intercept to the vertical intercept. We choose two prices, P1 and P2, and the corresponding quantities demanded, Q1 and Q2, for the purpose of calculating the price elasticity of demand. Also suppose P2 > P1. In which of the following cases could we possibly find that (i) demand is elastic and (ii) a decrease in price from P1 to P2 causes an decrease in total revenue? A) 0 < P₁< P₂< $10. B) $10 < P₁< P₂$20. C) P₁> $20. D) None of the above is correct.

Accepted Answer

It is not possible for demand to be elastic and for a decrease in price to cause a decrease in total revenue. In fact, when demand is elastic, a decrease in price causes an increase in total revenue. Therefore, none of the given options are correct.

Question 2

Figure 5-9 
-Refer to Figure 5-9. If the price rises from point D to point C, total revenue
A) increases, and demand is price elastic.
B) decreases, and demand is price elastic.
C) increases, and demand is price inelastic.
D) decreases, and demand is price inelastic.

Accepted Answer

The answer of Figure 5-9 
-Refer to Figure 5-9. If...

Question 3

Figure 5-9 
-Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point C and point D is about
A) 0.29.
B) 0.54.
C) 1.86.
D) 2.0.

Accepted Answer

To calculate price elasticity of demand using the midpoint method, we use the formula:
Price elasticity of demand = [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]

Using points C and D, we get:
Price elasticity of demand = [(100 - 200) / ((100 + 200)/2)] / [(8 - 10) / ((8 + 10)/2)]
                        = [-1 / 1.5] / [-2 / 9]
                        = 0.67 / -0.22
                        = -3.04

Since price elasticity of demand is a positive value, we take the absolute value:
Price elasticity of demand = 3.04

Rounding to one significant digit, we get:
Price elasticity of demand ≈ 0.5

Therefore, the best choice is B, with an explanation as shown above.

Question 4

Figure 5-8 
-Refer to Figure 5-8. An increase in price from $15 to $20 would
A) increase total revenue by $500
B) decrease total revenue by $500.
C) increase total revenue by $1,000.
D) decrease total revenue by $1,000.

Accepted Answer

The answer of Figure 5-8 
-Refer to Figure 5-8. An...

Question 5

Figure 5-5 
-Refer to Figure 5-5. At a price of $50 per unit, sellers' total revenue equals
A) $500.
B) $750.
C) $1000.
D) $1250.

Accepted Answer

The answer of Figure 5-5 
-Refer to Figure 5-5. At...

Question 6

Figure 5-8 
-Refer to Figure 5-8. When price falls from $25 to $20, demand is
A) inelastic, since total revenue decreases from $4,000 to $2,500.
B) inelastic, since total revenue increases from $2,500 to $4,000.
C) elastic, since total revenue increases from $2,500 to $4,000.
D) unit elastic, since total revenue does not change.

Accepted Answer

When price falls from $25 to $20, total revenue increases from $2,500 to $4,000, indicating that demand is elastic. Inelastic demand would result in a decrease in total revenue, while unit elastic demand would result in no change in total revenue.

Question 7

Figure 5-6 
-Refer to Figure 5-6. For prices above $8, demand is price
A) elastic, and total revenue will rise as price rises.
B) inelastic, and total revenue will rise as price rises.
C) elastic, and total revenue will fall as price rises.
D) inelastic, and total revenue will fall as price rises.

Accepted Answer

According to the graph, for prices above $8, demand is elastic, meaning that as prices rise, the quantity demanded falls significantly. Therefore, total revenue will fall as price rises. This is because the decrease in quantity demanded outweighs the increase in price, resulting in a net decrease in revenue.

Question 8

Figure 5-10 
-Refer to Figure 5-10. If rectangle D is larger than rectangle A, then
A) demand is elastic between prices P1 and P2.
B) a decrease in price from P2 to P1 will cause an increase in total revenue.
C) the magnitude of the percent change in price between P1 and P2 is smaller than the magnitude of the corresponding percent change in quantity demanded.
D) All of the above are correct.

Accepted Answer

The answer of Figure 5-10 
-Refer to Figure 5-10. If...

Question 9

Figure 5-7 
-Refer to Figure 5-7. For prices above $5, demand is price
A) elastic, and raising price will increase total revenue.
B) inelastic, and raising price will increase total revenue.
C) elastic, and lowering price will increase total revenue.
D) inelastic, and lowering price will increase total revenue.

Accepted Answer

The answer of Figure 5-7 
-Refer to Figure 5-7. For...

Question 10

Figure 5-11 
-Refer to Figure 5-11. A decrease in price from $20 to $10 leads to a
A) decrease in total revenue of $200, so the price elasticity of demand is greater than 1 in this price range.
B) decrease in total revenue of $200, so the price elasticity of demand is less than 1 in this price range.
C) decrease in total revenue of $120, so the price elasticity of demand is less than 1 in this price range.
D) decrease in total revenue of $120, so demand is elastic in this price range.

Accepted Answer

A decrease in price from $20 to $10 causes an increase in quantity demanded from 6 units to 12 units. Therefore, the total revenue before the price change was 6 units x $20 = $120, and after the price change it is 12 units x $10 = $120. Since the change in price and total revenue have the same direction, demand is inelastic in this price range (price elasticity of demand is less than 1). The decrease in total revenue is $0. Therefore, the only choice that matches these observations is C.

Question 11

Figure 5-10 
-Refer to Figure 5-10. Total revenue when the price is P2 is represented by the area(s)
A) B + D.
B) A + B.
C) C + D.
D) D.

Accepted Answer

The answer of Figure 5-10 
-Refer to Figure 5-10. Total...

Question 12

Figure 5-8 
-Refer to Figure 5-8. An increase in price from $10 to $15 would
A) increase total revenue by $1,000.
B) decrease total revenue by $1,000.
C) increase total revenue by $500.
D) decrease total revenue by $500.

Accepted Answer

The answer of Figure 5-8 
-Refer to Figure 5-8. An...

Question 13

Figure 5-7 
-Refer to Figure 5-7. For prices below $5, demand is price
A) elastic, and raising price will increase total revenue.
B) inelastic, and raising price will increase total revenue.
C) elastic, and lowering price will increase total revenue.
D) inelastic, and lowering price will increase total revenue.

Accepted Answer

The answer of Figure 5-7 
-Refer to Figure 5-7. For...

Question 14

Figure 5-9 
-Refer to Figure 5-9. If the price falls from point A to point B, total revenue
A) increases, and demand is price elastic.
B) decreases, and demand is price elastic.
C) increases, and demand is price inelastic.
D) decreases, and demand is price inelastic.

Accepted Answer

The answer of Figure 5-9 
-Refer to Figure 5-9. If...

Question 15

Figure 5-10 
-Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)
A) B + D.
B) A + B.
C) C + D.
D) D.

Accepted Answer

Total revenue when the price is P1 is represented by the area of the rectangle B + the area of the triangle D, so the correct answer is A.

Question 16

Figure 5-8 
-Refer to Figure 5-8. When the price is $15, total revenue is
A) $1,500.
B) $2,500.
C) $3,500.
D) $4,500.

Accepted Answer

The answer of Figure 5-8 
-Refer to Figure 5-8. When...

Question 17

Figure 5-12 
-Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is
A) 0.4.
B) 1.
C) 2.
D) 2.5.

Accepted Answer

The answer of Figure 5-12 
-Refer to Figure 5-12. Using...

Question 18

Figure 5-11 
-Refer to Figure 5-11. If price increases from $10 to $20, total revenue will
A) increase by $120, so demand must be inelastic in this price range.
B) increase by $320, so demand must be inelastic in this price range.
C) decrease by $120, so demand must be elastic in this price range.
D) decrease by $320, so demand must be elastic in this price range.

Accepted Answer

The answer of Figure 5-11 
-Refer to Figure 5-11. If...

Question 19

Figure 5-6 
-Refer to Figure 5-6. For prices below $8, demand is price
A) elastic, and total revenue will rise as price rises.
B) inelastic, and total revenue will rise as price rises.
C) elastic, and total revenue will fall as price rises.
D) inelastic, and total revenue will fall as price rises.

Accepted Answer

The answer of Figure 5-6 
-Refer to Figure 5-6. For...

Question 20

Figure 5-9 
-Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point A and point B is
A) 0.33.
B) 0.5.
C) 2.0.
D) 3.0.

Accepted Answer

The answer of Figure 5-9 
-Refer to Figure 5-9. Using...

Quiz 5: Elasticity and Its Application

Figure 5-9 -Refer to Figure 5-9. If the price rises from point D to point C, total revenue

Figure 5-9 -Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point C and point D is about

Figure 5-8 -Refer to Figure 5-8. An increase in price from $15 to $20 would

Figure 5-5 -Refer to Figure 5-5. At a price of $50 per unit, sellers' total revenue equals

Figure 5-8 -Refer to Figure 5-8. When price falls from $25 to $20, demand is

Figure 5-6 -Refer to Figure 5-6. For prices above $8, demand is price

Figure 5-10 -Refer to Figure 5-10. If rectangle D is larger than rectangle A, then

Figure 5-7 -Refer to Figure 5-7. For prices above $5, demand is price

Figure 5-11 -Refer to Figure 5-11. A decrease in price from $20 to $10 leads to a

Figure 5-10 -Refer to Figure 5-10. Total revenue when the price is P2 is represented by the area(s)

Figure 5-8 -Refer to Figure 5-8. An increase in price from $10 to $15 would

Figure 5-7 -Refer to Figure 5-7. For prices below $5, demand is price

Figure 5-9 -Refer to Figure 5-9. If the price falls from point A to point B, total revenue

Figure 5-10 -Refer to Figure 5-10. Total revenue when the price is P1 is represented by the area(s)

Figure 5-8 -Refer to Figure 5-8. When the price is $15, total revenue is

Figure 5-12 -Refer to Figure 5-12. Using the midpoint method, the price elasticity of demand between point X and point Y is

Figure 5-11 -Refer to Figure 5-11. If price increases from $10 to $20, total revenue will

Figure 5-6 -Refer to Figure 5-6. For prices below $8, demand is price

Figure 5-9 -Refer to Figure 5-9. Using the midpoint method, the price elasticity of demand between point A and point B is