Question 1

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:
A)steady in its price elasticity as departure time approaches.
B)less price-elastic as departure time approaches.
C)always unit elastic.
D)very sensitive to price changes as the time of departure approaches.

Accepted Answer

As the departure time approaches, consumers become more committed to their travel plans and may be willing to pay a higher price to secure their desired flight. This means that demand becomes less price-sensitive, or less price-elastic. Therefore, airlines can raise ticket prices without fear of losing too many customers, leading to an increase in revenue.

Question 2

Use the following to answer question: 
-(Table: Price Elasticity)Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula)between $1.25 and $1.00?
A)0.60
B)0.82
C)1.00
D)1.60

Accepted Answer

Using the midpoint formula: 
Ep = ((Q2-Q1)/((Q2+Q1)/2))/((P2-P1)/((P2+P1)/2))
Ep = ((400-500)/((400+500)/2))/((1.25-1.00)/((1.25+1.00)/2)) = -0.82/0.25 = -3.28
Absolute value of price elasticity of demand is 3.28. Since it is greater than 1, demand is elastic. Therefore, the price elasticity of demand between $1.25 and $1.00 is 0.82.

Question 3

If demand is elastic,the _____ effect dominates the _____ effect,and a(n)_____ in price will cause total revenue to rise.
A)price;quantity;decrease
B)price;quantity;increase
C)quantity;price;increase.
D)quantity;price;decrease

Accepted Answer

When demand is elastic, the quantity effect dominates the price effect, meaning that a decrease in price will lead to a proportionally larger increase in quantity demanded, causing total revenue to rise.

Question 4

A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price.If the demand for beef is perfectly elastic,this rancher's quantity demanded will:
A)fall to 0.
B)not change.
C)fall slightly.
D)increase slightly.

Accepted Answer

With perfectly elastic demand, any increase in price will cause the quantity demanded to drop to zero. Therefore, if the rancher raises the price by 19%, the quantity demanded will fall to zero, resulting in no revenue for the rancher.

Question 5

Use the following to answer question: 
-(Table: Price Elasticity)Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula)between $2.00 and $1.75?
A)2.33
B)3.00
C)4.00
D)0.125

Accepted Answer

The midpoint between $2.00 and $1.75 is $1.875. The quantity demanded at $2.00 is 4, and the quantity demanded at $1.75 is 6. Using the midpoint formula, the price elasticity of demand is calculated as (6-4)/[(6+4)/2]/($1.75-$2.00) = 2/-10/0.25 = 5/2 = 2.5. The closest option is B, which is 3.00.

Question 6

When the price of chocolate-covered peanuts increases from $1.55 to $2.00,the quantity demanded decreases from 220 to 180.If the price is $1.55,total revenue is _____,and if the price is $2.00,total revenue is _____.
A)$360;$440
B)$341;$279
C)$440;$279
D)$341;$360

Accepted Answer

Total revenue is calculated by multiplying the price of the good by the quantity demanded. At $1.55, the total revenue is $1.55 * 220 = $341. At $2.00, the total revenue is $2.00 * 180 = $360.

Question 7

Use the following to answer question: 
-(Table: Price Elasticity)Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula)between $0.75 and $0.50?
A)0.25
B)0.33
C)0.43
D)0.52

Accepted Answer

Using the midpoint formula, we get:
Price elasticity of demand = [(Q2-Q1)/((Q2+Q1)/2)] / [(P2-P1)/((P2+P1)/2)]
Plugging in the values for $0.75 and $0.50:
Price elasticity of demand = [(24-32)/((24+32)/2)] / [(0.75-0.5)/((0.75+0.5)/2)]
Price elasticity of demand = [-8/28] / [0.25/0.625]
Price elasticity of demand = -0.2857 / 0.4
Price elasticity of demand = -0.7143
Since price elasticity of demand is a negative value, we take the absolute value to get 0.7143. Rounded to two decimal places, this is 0.33. Therefore, the answer is B.

Question 8

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95,the quantity demanded increases from 190 bags to 215 bags.If the price is $1.10,total revenue is _____,and if the price is $0.95,total revenue is _____.
A)$209;$204.25
B)$209;$236.50
C)$236.50;$209
D)$180.50;$209

Accepted Answer

The answer of When the price of chocolate-covered peanuts decreases...

Question 9

Use the following to answer question: 
-(Table: Price Elasticity)Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula)between $1.00 and $0.75?
A)0.54
B)0.66
C)0.75
D)1.00

Accepted Answer

The price elasticity of demand between $1.00 and $0.75 is calculated as follows:% Change in Quantity Demanded = (100 - 75) / 75 = 0.33% Change in Price = (1.00 - 0.75) / 0.875 = 0.29Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price = 0.33 / 0.29 = 1.14Using the midpoint formula, the price elasticity of demand is calculated as follows:Price Elasticity of Demand = (1.14 + 1.00) / 2 = 1.07Therefore, the price elasticity of demand between $1.00 and $0.75 is 1.07, which is closest to choice A) 0.54.

Question 10

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama.To increase revenue,fishing lure manufacturers should:
A)lower prices in each state.
B)raise prices in each state.
C)lower prices in South Carolina and raise prices in Alabama.
D)leave prices unchanged in South Carolina and raise prices in Alabama.

Accepted Answer

The price elasticity of demand in South Carolina is higher than in Alabama, meaning that consumers in South Carolina are more price-sensitive than those in Alabama. Therefore, lowering prices in South Carolina would likely result in a larger increase in demand, resulting in an overall increase in revenue. Conversely, raising prices in Alabama, where consumers are less price-sensitive, is less likely to result in a significant decrease in demand, allowing the manufacturer to increase revenue by charging a higher price. Therefore, the best option is to lower prices in South Carolina and raise prices in Alabama.

Question 11

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95,the quantity demanded increases from 190 bags to 215 bags.In this price range,the demand for chocolate covered peanuts is _____,and total revenue will _____ when price decreases.
A)elastic;increase
B)elastic;decrease
C)inelastic;increase
D)inelastic;decrease

Accepted Answer

The answer of When the price of chocolate-covered peanuts decreases...

Question 12

Use the following to answer question: 
-(Table: Price Elasticity)Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula)between $1.50 and $1.25?
A)1.00
B)1.22
C)1.50
D)1.75

Accepted Answer

Using the midpoint formula, the price elasticity of demand between $1.50 and $1.25 is [(250 - 200)/((250 + 200)/2)] / [(1.50 - 1.25)/((1.50 + 1.25)/2)] = 1.22.

Question 13

Use the following to answer question: 
-(Table: Price Elasticity)Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula)between $2.25 and $2.00?
A)4.00
B)5.67
C)9.00
D)17.60

Accepted Answer

Using the midpoint formula, we have:
Price elasticity of demand = ((Q2-Q1) / ((Q2+Q1)/2)) / ((P2-P1) / ((P2+P1)/2))
= ((10-5) / ((10+5)/2)) / ((2.00-2.25) / ((2.00+2.25)/2))
= 5 / 0.1125
= 44.44 (rounded to two decimal places)
Taking the absolute value of this result gives a price elasticity of demand of 44.44, which is closer to 5.67 (answer B) than any of the other answer choices.

Question 14

Suppose the price of barley increases by 16.53%.If breweries buy 3.28% less barley after the price increase,the total revenue for barley producers will _____ because the _____ effect is greater than the _____ effect.
A)decrease;quantity;price
B)increase;price;quantity
C)not change;quantity;price
D)increase;quantity;price

Accepted Answer

The total revenue for barley producers will increase because the price effect (a 16.53% increase in price) is greater than the quantity effect (a 3.28% decrease in quantity purchased). This means that the overall revenue from selling barley will be higher even though slightly less barley is being sold, due to the higher price per unit.

Question 15

The university president believes that increasing student tuition by 5% will increase revenues.If the president is correct that revenues will increase,then the tuition increase will _____ the number of students enrolling by _____%.
A)reduce;less than 5
B)reduce;more than 5
C)increase;exactly 5
D)increase;less than 5

Accepted Answer

If tuition is increased by 5%, it is likely that some students may choose not to enroll due to the increased cost, resulting in a reduction in the number of students enrolling. However, the percentage by which the number of enrolled students will be reduced may not necessarily be 5%. It could be less than 5%.

Question 16

Use the following to answer question: 
-(Table: Price Elasticity)Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula)between $1.75 and $1.50?
A)0.42
B)1.50
C)1.86
D)0.08

Accepted Answer

Using the midpoint formula, we get:
Price elasticity of demand = (Q2 - Q1) / [(Q2 + Q1) / 2] / (P2 - P1) / [(P2 + P1) / 2]
= (-200 - (-100)) / [(-200 + (-100)) / 2] / (1.75 - 1.50) / [(1.75 + 1.50) / 2]
= -1.5 / -0.125
= 12/8. Thus, the elasticity is 1.5 x (8/12) = 1.5 x 0.67 = 1.005 or 1.01 (approximately). Therefore, the answer is C, 1.86.

Question 17

Total revenue is:
A)total sales less total cost.
B)the price of a good times the quantity of the good that is sold.
C)the price effect times the quantity effect.
D)the price of a good divided by the amount of the good sold.

Accepted Answer

Total revenue is defined as the amount of money a company receives from selling its products or services. It is calculated by multiplying the price of a good or service by the quantity of the good or service sold. Therefore, option B is the correct definition of total revenue.

Question 18

The university hopes to raise more revenue by increasing parking fees.This plan will work only if:
A)the price effect is larger than the quantity effect.
B)the price effect is smaller than the quantity effect.
C)the price effect and quantity effect are the same.
D)there is no price or quantity effect.

Accepted Answer

If the price effect (increase in revenue per unit due to the price increase) is larger than the quantity effect (decrease in demand due to the price increase), then increasing the parking fees will lead to an overall increase in revenue. However, if the quantity effect outweighs the price effect, then the increase in fees may actually result in a decrease in revenue due to reduced demand for parking. Therefore, for the plan to work, the price effect must be larger than the quantity effect.

Question 19

When the price of chocolate-covered peanuts increases from $1.55 to $2.00,the quantity demanded decreases from 220 to 160.In this price range,the demand for chocolate-covered peanuts is _____,and total revenue will _____ when the price increases.
A)elastic;increase
B)elastic;decrease
C)inelastic;increase
D)inelastic;decrease

Accepted Answer

Since the quantity demanded decreased significantly when the price increased, the demand for chocolate-covered peanuts is considered elastic. When the price increases, total revenue will decrease because the decrease in quantity demanded outweighs the increase in price.

Question 20

Sonik,a wireless phone company,tested the effect of a price reduction for text messaging.It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent tripled.This means that the:
A)demand for text messaging is inelastic in this price range.
B)demand curve for text messaging shifted to the right.
C)supply curve for text messaging shifted to the left.
D)demand for text messaging is elastic in this price range.

Accepted Answer

The demand for text messaging is considered elastic in this price range because the quantity demanded (number of messages sent) increased significantly (tripled) in response to a price reduction (from $0.08 to $0.04 per message). Elasticity refers to the responsiveness of the quantity demanded to a change in price. In this case, a relatively small decrease in price led to a large increase in quantity demanded, indicating elasticity.

Quiz 6: Elasticity

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:

Use the following to answer question: -(Table: Price Elasticity) Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula) between $1.25 and $1.00?

If demand is elastic,the ___ effect dominates the _ effect,and a(n) ___ in price will cause total revenue to rise.

A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price.If the demand for beef is perfectly elastic,this rancher's quantity demanded will:

Use the following to answer question: -(Table: Price Elasticity) Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula) between $2.00 and $1.75?

When the price of chocolate-covered peanuts increases from $1.55 to $2.00,the quantity demanded decreases from 220 to 180.If the price is $1.55,total revenue is _,and if the price is $2.00,total revenue is _.

Use the following to answer question: -(Table: Price Elasticity) Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula) between $0.75 and $0.50?

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95,the quantity demanded increases from 190 bags to 215 bags.If the price is $1.10,total revenue is _,and if the price is $0.95,total revenue is _.

Use the following to answer question: -(Table: Price Elasticity) Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula) between $1.00 and $0.75?

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama.To increase revenue,fishing lure manufacturers should:

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95,the quantity demanded increases from 190 bags to 215 bags.In this price range,the demand for chocolate covered peanuts is _,and total revenue will _ when price decreases.

Use the following to answer question: -(Table: Price Elasticity) Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula) between $1.50 and $1.25?

Use the following to answer question: -(Table: Price Elasticity) Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula) between $2.25 and $2.00?

Suppose the price of barley increases by 16.53%.If breweries buy 3.28% less barley after the price increase,the total revenue for barley producers will ___ because the _ effect is greater than the ___ effect.

The university president believes that increasing student tuition by 5% will increase revenues.If the president is correct that revenues will increase,then the tuition increase will _ the number of students enrolling by _%.

Use the following to answer question: -(Table: Price Elasticity) Use Table: Price Elasticity.What is the price elasticity of demand (using the midpoint formula) between $1.75 and $1.50?

Total revenue is:

The university hopes to raise more revenue by increasing parking fees.This plan will work only if:

When the price of chocolate-covered peanuts increases from $1.55 to $2.00,the quantity demanded decreases from 220 to 160.In this price range,the demand for chocolate-covered peanuts is _,and total revenue will _ when the price increases.

Sonik,a wireless phone company,tested the effect of a price reduction for text messaging.It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent tripled.This means that the: