Question 1

- Over the price range from $180 to $120 in Figure 20.1,ceteris paribus,
A)Demand is elastic.
B)Total revenue is maximized.
C)Demand is increasing.

Accepted Answer

Over the price range from $180 to $120, if demand is elastic, a decrease in price leads to an increase in total revenue, indicating that the percentage change in quantity demanded is greater than the percentage change in price.

Question 2

If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43,the company should
A)Increase the price of its coffee.
B)Decrease the price of its coffee.
C)Keep the price constant since a price increase or decrease will cause total revenue to fall.

Accepted Answer

Since the price elasticity of demand is inelastic (less than 1), increasing the price will lead to an increase in total revenue.

Question 3

-In the $80 to $40 price range in Figure 20.1,demand is
A)Perfectly price-elastic.
B)Price-inelastic.
C)Unitary elastic.

Accepted Answer

In the $80 to $40 price range, the graph shows that a decrease in price (from $80 to $40) leads to a proportionately smaller increase in quantity demanded. This indicates that the demand is relatively insensitive to price changes, making it price-inelastic.

Question 4

-If the price is reduced from $100 to $80 in Figure 20.1,ceteris paribus,
A)Total revenue will decrease.
B)Demand will increase.
C)Quantity demanded will decrease.

Accepted Answer

When the price decreases from $100 to $80, total revenue will decrease if the demand is inelastic, as the percentage drop in price will outweigh the percentage increase in quantity demanded.

Question 5

If the price of a good rises by 10 percent and quantity demanded falls by 20 percent,we can predict that
A)The company's total revenue will increase.
B)The company's total profit will rise.
C)The company's total revenue will decrease.

Accepted Answer

The price elasticity of demand is calculated by dividing the percentage change in quantity demanded by the percentage change in price. In this case, the price elasticity of demand is -20%/10% = -2, meaning that the good has an elastic demand (i.e. a change in price leads to a larger percentage change in quantity demanded). When the price increases, the total revenue of the company will decrease because the increase in price is not enough to offset the decrease in quantity demanded. Therefore, choice C is the correct answer.

Question 6

If the price of Good X falls and total revenue rises,then
A)Demand for Good X is inelastic.
B)Demand for Good X is unitary elastic.
C)Demand for Good X is elastic.

Accepted Answer

If the price of Good X falls and total revenue rises, it means that the demand for Good X is responsive to price changes, i.e., the demand for Good X is elastic. When the price falls, the quantity demanded increases enough to more than compensate for the lower price, leading to an increase in total revenue. This suggests that consumers are sensitive to price changes and will buy more of the Good when the price is reduced.

Question 7

A price decrease will cause total revenue to fall if
A)Demand is elastic.
B)Demand is inelastic.
C)Demand is unitary elastic.

Accepted Answer

When demand is inelastic, a price decrease leads to a smaller percentage increase in quantity demanded, causing total revenue to fall.

Question 8

- Refer to Figure 20.2.If the area 0P₁AB is less than the area 0P₂CD,we can conclude that the price elasticity of demand between point A and point C is A)Elastic. B)Inelastic. C)Unitary elastic.

Accepted Answer

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 area 0P₁AB represents the quantity demanded at price P₁, and the area 0P₂CD represents the quantity demanded at price P₂. If the area 0P₁AB is less than the area 0P₂CD, then the quantity demanded has decreased by a greater percentage than the price has increased. This indicates that the demand is elastic, meaning that consumers are responsive to changes in price.

Question 9

Assume the price elasticity of demand for MC Pretzel Co.pretzels is 0.8.If the company increases the price of each bag of pretzels,total revenue will
A)Decrease because fewer bags will be sold.
B)Increase because demand is elastic and revenue will rise.
C)Increase because the percentage increase in price is greater than the percentage change in quantity demanded.

Accepted Answer

When demand is inelastic (elasticity < 1), an increase in price leads to a smaller percentage decrease in quantity demanded, resulting in higher total revenue.

Question 10

Assume apples and oranges are substitutes.Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product.As a result the cross-price elasticity of apples and oranges will become
A)Less negative (move closer to zero).
B)More negative.
C)Less positive (move closer to zero).

Accepted Answer

The answer of Assume apples and oranges are substitutes.Suppose apple...

Question 11

On a demand curve,demand is more elastic
A)At higher prices.
B)At lower prices.
C)When demand is unitary.

Accepted Answer

At higher prices, consumers are more sensitive to price changes, making demand more elastic.

Question 12

MP3 players and MP3 files are complementary goods.The cross-price elasticity of demand between MP3 players and MP3 files is expected to be
A)Positive.
B)Negative.
C)Equal to zero.

Accepted Answer

Complementary goods have a negative cross-price elasticity of demand because an increase in the price of one leads to a decrease in the demand for the other.

Question 13

- Refer to Figure 20.2.Suppose the areas 0P₁AB and 0P₂CD are equal.We can conclude that the price elasticity of demand between point A and point C is A)Elastic. B)Inelastic. C)Unitary elastic.

Accepted Answer

When the areas under the demand curve are equal, it indicates that the total revenue remains constant, which is a characteristic of unitary elasticity.

Question 14

A grocery store put salt on sale but found that total revenues fell.This can be explained by which of the following?
A)The demand for salt is very elastic.
B)The demand curve for salt is vertical.
C)The demand for salt is inelastic.

Accepted Answer

If the total revenues fell after putting salt on sale, it suggests that the quantity demanded did not increase enough to offset the decrease in price. This would happen if the demand for salt is inelastic, meaning that consumers are not very responsive to changes in price. If the demand for salt were very elastic, the decrease in price should have led to an overall increase in revenues. If the demand curve for salt were vertical, then any change in price would result in no change in quantity demanded, which is not consistent with the observation that revenues fell.

Question 15

If the demand for cigarettes is inelastic,
A)Total revenue will rise if the price of cigarettes rises.
B)No matter how high the price goes,the quantity demanded will not fall.
C)Total revenue will fall if the price of cigarettes rises.

Accepted Answer

If the demand for cigarettes is inelastic, it means that consumers are not very responsive to changes in price. Therefore, if the price of cigarettes rises, the quantity demanded will not fall by a large amount, and as a result, total revenue (price x quantity) will increase.

Question 16

Cross-price elasticity refers to
A)How responsive consumers are to a change in price.
B)How responsive consumers are to a change in income.
C)How responsive consumers of one good are to a change in the price of another good.

Accepted Answer

Cross-price elasticity measures how sensitive (or responsive) the demand for one good is to a change in the price of another good. It tells us how substitutable two goods are. If the cross-price elasticity is positive, it means that the two goods are substitutes, and a price increase in one good will lead to an increase in demand for the other good (and vice versa). If the cross-price elasticity is negative, it means that the two goods are complements, and a price increase in one good will lead to a decrease in demand for the other good (and vice versa).

Question 17

- In Figure 20.1,at what price is the elasticity of demand unitary?
A)$40.
B)$100.
C)$160.

Accepted Answer

The elasticity of demand is unitary when the percentage change in quantity demanded is equal to the percentage change in price. This typically occurs at the midpoint of a linear demand curve, which is often represented by the price of $100 in such examples.

Question 18

Maximum total revenue occurs when
A)Total revenue is -1.0.
B)The absolute value of the price elasticity of demand is 1.0.
C)Price multiplied by quantity is 1.0.

Accepted Answer

The maximum total revenue occurs when the price elasticity of demand is equal to -1, which means that a small percentage change in price results in an equal and opposite percentage change in quantity demanded. Therefore, the optimal price level is the one which maximizes the product of price and quantity, resulting in the highest total revenue. When the absolute value of the price elasticity of demand is 1.0, the demand is said to be unit elastic, and at this point, total revenue is maximized.

Question 19

Carter has budgeted $40 per month for candy bars.No matter how the price of candy bars changes,he spends exactly $40 per month.Carter's price elasticity of demand for candy bars must
A)Equal zero.
B)Be unitary.
C)Be very inelastic since the amount he spends is not responsive to a price change.

Accepted Answer

Carter's price elasticity of demand is unitary because he adjusts the quantity he buys to ensure his total expenditure remains constant at $40, regardless of price changes.

Question 20

- Refer to Figure 20.2.Comparing the price elasticity of demand at points A and C,we can say that
A)The elasticities are the same because the points are on the same demand curve.
B)Point A has a greater price elasticity of demand.
C)Point C has a greater price elasticity of demand.

Accepted Answer

Price elasticity of demand varies along the demand curve. Typically, the elasticity is greater at higher prices and lower quantities, which is likely the case at point A compared to point C.

Quiz 20: Elasticity

- Over the price range from $180 to $120 in Figure 20.1,ceteris paribus,

If Carmen's Coffee Company wants to increase total revenue and the price elasticity of demand is 0.43,the company should

-In the $80 to $40 price range in Figure 20.1,demand is

-If the price is reduced from $100 to $80 in Figure 20.1,ceteris paribus,

If the price of a good rises by 10 percent and quantity demanded falls by 20 percent,we can predict that

If the price of Good X falls and total revenue rises,then

A price decrease will cause total revenue to fall if

- Refer to Figure 20.2.If the area 0P1AB is less than the area 0P2CD,we can conclude that the price elasticity of demand between point A and point C is

Assume the price elasticity of demand for MC Pretzel Co.pretzels is 0.8.If the company increases the price of each bag of pretzels,total revenue will

Assume apples and oranges are substitutes.Suppose apple growers launch a successful advertising campaign that convinces consumers apples are a better product.As a result the cross-price elasticity of apples and oranges will become

On a demand curve,demand is more elastic

MP3 players and MP3 files are complementary goods.The cross-price elasticity of demand between MP3 players and MP3 files is expected to be

- Refer to Figure 20.2.Suppose the areas 0P1AB and 0P2CD are equal.We can conclude that the price elasticity of demand between point A and point C is

A grocery store put salt on sale but found that total revenues fell.This can be explained by which of the following?

If the demand for cigarettes is inelastic,

Cross-price elasticity refers to

- In Figure 20.1,at what price is the elasticity of demand unitary?

Maximum total revenue occurs when

Carter has budgeted $40 per month for candy bars.No matter how the price of candy bars changes,he spends exactly $40 per month.Carter's price elasticity of demand for candy bars must

- Refer to Figure 20.2.Comparing the price elasticity of demand at points A and C,we can say that

- Refer to Figure 20.2.If the area 0P₁AB is less than the area 0P₂CD,we can conclude that the price elasticity of demand between point A and point C is

- Refer to Figure 20.2.Suppose the areas 0P₁AB and 0P₂CD are equal.We can conclude that the price elasticity of demand between point A and point C is