Question 1

Which of the following statements is correct?
A) In the case of a linear demand curve, the slope and the price elasticity of demand are equal at each point on the demand curve.
B) The slope of the demand curve is some constant value, but the value of the price elasticity coefficient decreases as we move down the demand curve.
C) The slope of the demand curve is some constant value, but the value of the price elasticity coefficient increases as we move down the demand curve.
D) There is no connection between the slope of the demand curve and the value of the price elasticity coefficient.

Accepted Answer

The slope of a demand curve is constant in the case of a linear demand curve, but the price elasticity of demand varies along the curve. It decreases as we move down the curve because elasticity depends not just on the slope but also on the price and quantity levels at any given point.

Question 2

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?
A) Quantity demanded will be relatively sensitive to the change in price.
B) The percentage change in quantity demanded will be quite small relative to the percentage change in price.
C) The percentage change in price will be quite large relative to the percentage change in quantity demanded.
D) Demand will tend to be unitary elastic as it is for most goods in the long run.

Accepted Answer

When consumers have a great deal of time to adjust to a price increase, they can find alternatives or change their consumption habits, making the quantity demanded more sensitive to price changes. This is known as having a more elastic demand.

Question 3

Which of the following statements is correct?
A) Arc elasticity of demand is the same as the slope of the demand curve.
B) Arc elasticity of demand only applies to a nonlinear demand curve.
C) Point elasticity of demand is measured at each point along a demand curve.
D) Point elasticity of demand is measured between two adjacent points on a demand curve.

Accepted Answer

Point elasticity of demand is measured at each point along a demand curve. It measures the responsiveness of demand at a specific point on the curve. Conversely, arc elasticity measures the responsiveness of demand between two points on a demand curve, which may not be representative of the elasticity at any given point.

Question 4

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will:
A) tend to become more price elastic.
B) tend to become more price inelastic.
C) tend to become closer to unit elastic.
D) tend toward being perfectly elastic.

Accepted Answer

The answer of As the percentage of the consumer's income...

Question 5

The last time the U.S. Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase. It can be concluded that:
A) both groups believe demand is elastic, but for different reasons.
B) both groups believe demand is inelastic, but for different reasons.
C) the Post Office believes demand for mail service is elastic; opponents of the price increase believe demand is inelastic.
D) the Post Office believes demand for mail service is inelastic; opponents of the price increase believe demand is elastic.

Accepted Answer

The Post Office's decision to raise prices implies that they believe demand for mail service is inelastic - they believe that an increase in price will not significantly decrease the quantity demanded of their service. Critics of this decision argue that demand is actually elastic - that an increase in price will lead to a larger decrease in the quantity demanded than the Post Office anticipates, leading to a decrease in revenue.

Question 6

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when Q is equal to 5, average revenue and marginal revenue are equal to ________and________ . A) $75; $75. B) $85; $85. C) $75; $60. D) $60; $60_.

Accepted Answer

Average revenue is equal to price, which is $75 when Q=5. Marginal revenue is calculated as the derivative of total revenue (P*Q), which gives $60 when Q=5.

Question 7

According to one study, the price elasticity of demand for restaurant meals is -2.27. This implies that if restaurants want to increase their total revenues they should:
A) increase price.
B) decrease price.
C) leave price unchanged.
D) cannot be determined with the information given.

Accepted Answer

A price elasticity of demand of -2.27 indicates that demand is elastic, meaning that a decrease in price will lead to a proportionally larger increase in quantity demanded, thus increasing total revenue.

Question 8

Assume an analyst has been hired to estimate the price elasticity of demand for hamburger which sells for about $2.30 per pound) and filet mignon which sells for about $20 per pound), respectively. Considering the different determinants of the price elasticity of demand, we would expect the coefficient of price elasticity of demand to be:
A) larger for hamburger than for filet mignon.
B) larger for filet mignon than for hamburger.
C) approximately the same for both hamburger and filet mignon.
D) none of the above because different determinants would have opposing effects on the two estimates.

Accepted Answer

The answer of Assume an analyst has been hired to...

Question 9

Which of the following is not considered to be a determinant of the price elasticity of demand for a particular good?
A) The number of available substitutes.
B) The cost of the good relative to total income.
C) The quantity of the good that is supplied to the market.
D) The time period under consideration.

Accepted Answer

The quantity of the good supplied to the market is not considered to be a determinant of the price elasticity of demand. The determinants of price elasticity of demand include availability of substitutes, cost of the good relative to total income, time period under consideration, consumer preferences, and necessity of the good.

Question 10

In which of the following cases would the price elasticity of demand be expected to increase?
A) The number of close substitutes for the good increases.
B) The time period under consideration decreases.
C) The cost of the good relative to total income decreases.
D) The supply of the good increases.

Accepted Answer

When the number of close substitutes for the good increases, consumers have more options to choose from and can easily switch to a substitute if the price of the original good increases. This makes the demand for the original good more elastic, as consumers are more responsive to changes in price.

Question 11

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple. The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the arc price elasticity of demand for movies?
A) 0.5
B) 0.8
C) 1.0
D) 1.2

Accepted Answer

The answer of Suppose the price of movies seen at...

Question 12

In the long run, the price elasticity of demand is_________ than in the short run because _______.
A) less; consumers have more time in which to make adjustments to price changes
B) less; the percentage change is measured over a larger amount of time
C) greater; consumers have more time in which to make adjustments to price changes
D) greater; firms have more time to shift the burden of the tax forward to consumers

Accepted Answer

In the long run, consumers have more time to find substitutes for the good and adjust their consumption patterns, making the price elasticity of demand greater. In the short run, consumers may have fewer options and may be more willing to pay higher prices, making the price elasticity of demand less.

Question 13

Many unions attempt to raise the hourly wages received by their members by restricting the supply of workers firms can hire from. Assuming the demand for workers who belong to these unions is inelastic, this would cause:
A) wages of individual union members to decrease and the total combined) income of union members to increase.
B) wages of individual union members and the total combined) income of union members to decrease.
C) wages of individual union members to increase and the total combined) income of union members to decrease.
D) wages of individual union members and the total combined) income of union members to increase.

Accepted Answer

When the supply of workers is restricted and the demand for those workers is inelastic, wages for individual union members increase because employers are willing to pay more for the limited labor available. Additionally, the total income of union members increases because the higher wages more than offset the reduced number of workers.

Question 14

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when P = 20, the point price elasticity of demand is equal to approximately):
A) -0.22.
B) -0.29.
C) -0.67.
D) -4.5.

Accepted Answer

The answer of Assuming the inverse demand function for good...

Question 15

A car dealer wants to get rid of the stock of last year's model. Assume that the dealer knows from past experience that the price elasticity of demand for cars is unitary = 1). If the price of the cars is currently $20,000 and the dealer wants to increase the quantity demanded from 30 units to 50 units, what must the new price be if the dealer is to sell the 20 additional cars?
A) $10,000
B) $12,000
C) $16,000
D) $18,000

Accepted Answer

With unitary price elasticity of demand, the percentage change in quantity demanded is equal to the percentage change in price. To increase quantity demanded from 30 to 50 units, which is a 66.67% increase ((50-30)/30*100), the price must decrease by the same percentage. A decrease of 66.67% from the original price of $20,000 would not result in $12,000, indicating a mistake in the calculation based on the given elasticity. The correct approach involves understanding that with unitary elasticity, the total revenue remains constant. Therefore, the correct calculation should focus on finding the price that maintains the same total revenue with the increased quantity demanded. However, the provided explanation and choices seem to misinterpret the application of unitary elasticity, as none of the choices directly align with a 66.67% decrease. The correct approach would involve calculating the new price that keeps total revenue constant, given the increase in quantity demanded.

Question 16

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of demand for pizzas is:
A) 0.67.
B) 1.5.
C) 2.0.
D) 3.0.

Accepted Answer

The answer of If the local pizzeria raises the price...

Question 17

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general.Ceteris paribus, we would expect the price elasticity of demand to be:
A) larger for Levi's brand blue jeans than for blue jeans in general.
B) larger for blue jeans in general than for Levi's brand blue jeans.
C) approximately the same for both Levi's brand blue jeans and blue jeans in general.
D) none of the above because the market for blue jeans cannot be analyzed using the model of supply and demand.

Accepted Answer

The price elasticity of demand is typically larger for specific brands (like Levi's) because consumers can more easily switch to other brands if the price of Levi's increases. In contrast, the demand for blue jeans in general is less elastic because there are fewer substitutes for the product category as a whole.

Question 18

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?
A) It accounts for a small part of the consumer's total income.
B) The good has many available substitutes.
C) It is a non-durable as opposed to a durable good).
D) There is little time for the consumer to adjust to the price change.

Accepted Answer

When a good has many available substitutes, consumers are more likely to switch to a cheaper substitute if the price of the original good increases. This makes the demand for the original good more price elastic, as even a slight increase in price can lead to a significant decrease in demand.

Question 19

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, the corresponding total revenue function is: A) 6Q. B) 90 - 6Q. C) 90 - 3Q. D) 90Q - 3Q².

Accepted Answer

The total revenue function is found by multiplying the price (P) by the quantity (Q). Given the inverse demand function P = 90 - 3Q, the total revenue (TR) is TR = P * Q = (90 - 3Q) * Q = 90Q - 3Q^2.

Question 20

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?
A) Senior citizens tend to have elastic demands for restaurant meals.
B) Senior citizens tend to have inelastic demands for restaurant meals.
C) Senior citizens are not very sensitive to changes in price.
D) Senior citizens are easily fooled by "come-ons" and are therefore frequently victims of price discrimination.

Accepted Answer

Senior citizens often have fixed incomes and are more price-sensitive, meaning their demand is more elastic. Offering discounts can attract this demographic by making dining out more affordable for them.

Quiz 3: Demand Elasticities

Which of the following statements is correct?

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

Which of the following statements is correct?

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will:

The last time the U.S. Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase. It can be concluded that:

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when Q is equal to 5, average revenue and marginal revenue are equal to and .

According to one study, the price elasticity of demand for restaurant meals is -2.27. This implies that if restaurants want to increase their total revenues they should:

Which of the following is not considered to be a determinant of the price elasticity of demand for a particular good?

In which of the following cases would the price elasticity of demand be expected to increase?

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple. The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the arc price elasticity of demand for movies?

In the long run, the price elasticity of demand is___ than in the short run because _.

Many unions attempt to raise the hourly wages received by their members by restricting the supply of workers firms can hire from. Assuming the demand for workers who belong to these unions is inelastic, this would cause:

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when P = 20, the point price elasticity of demand is equal to approximately) :

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of demand for pizzas is:

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general.Ceteris paribus, we would expect the price elasticity of demand to be:

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, the corresponding total revenue function is:

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?