Question 1

If a small increase in the price of a good reduces quantity demanded to zero, demand is ________________ and the price elasticity of demand is equal to _______________.

Accepted Answer

Perfectly elastic demand means that a tiny increase in price leads to the quantity demanded dropping to zero, indicating an infinite price elasticity of demand.

Question 2

Which of the following is a determinant of price elasticity of demand for good Z?

Accepted Answer

All of the listed options are determinants of the price elasticity of demand for a good. The number of substitutes affects how easily consumers can switch to another product if the price of good Z changes. The percentage of one's budget spent on good Z influences how sensitive consumers are to price changes; if they spend a significant portion of their budget on the good, they are likely to be more sensitive to price changes. The amount of time that has passed since the price change allows consumers more time to adjust their consumption habits, affecting the elasticity of demand.

Question 3

If income elasticity of demand for a good is negative, the good is a(n) __________ good.

Accepted Answer

When the income elasticity of demand for a good is negative, it means that as income increases, the demand for the good decreases. This characteristic is typical of inferior goods, as consumers tend to buy less of these goods when their income levels rise, opting instead for higher-quality or more expensive alternatives.

Question 4

If price elasticity of demand is 0.5, it follows that a _______ percent decrease in price would cause a _______ percent increase in quantity demanded.

Accepted Answer

The price elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. If elasticity is 0.5, a 2% decrease in price leads to a 1% increase in quantity demanded (0.5 = 1%/2%).

Question 5

The price elasticity of demand indicates

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, indicating buyers' responsiveness to price changes.

Question 6

Exhibit 19-3
 
-Refer to Exhibit 19-3. When price decreases from $1.50 to $0.50, the price elasticity of supply is

Accepted Answer

The answer of Exhibit 19-3
 
-Refer to Exhibit 19-3. When...

Question 7

Airlines that try to lower fares in order to increase revenue must believe that the demand for airline service is

Accepted Answer

When demand is price elastic, lowering prices leads to a proportionally larger increase in the quantity demanded, which can increase total revenue. This is why airlines would lower fares, expecting more people to fly due to the lower prices.

Question 8

If demand for a product is perfectly inelastic, a tax of $1 per unit imposed on sellers will

Accepted Answer

When demand is perfectly inelastic, consumers are willing to pay any price for a product because they view it as a necessity or have no substitutes. Therefore, if a tax of $1 per unit is imposed on sellers, the entire tax burden will be passed on to consumers, causing the market price to rise by $1 per unit.

Question 9

When the cross elasticity of demand between two goods is __________, the goods are __________.

Accepted Answer

When the cross elasticity of demand between two goods is negative, it means that if the price of one good increases, the demand for the other good decreases, indicating that the two goods are complements for one another.

Question 10

Exhibit 19-3
 
-Refer to Exhibit 19-3. When price decreases from $3.50 to $2.50, the price elasticity of supply is

Accepted Answer

The answer of Exhibit 19-3
 
-Refer to Exhibit 19-3. When...

Question 11

If a 7 percent increase in the price of a commodity results in a 12 percent increase in the quantity supplied, supply is said to be

Accepted Answer

The supply is considered elastic when the percentage change in quantity supplied is greater than the percentage change in price, indicating a high responsiveness of quantity supplied to price changes.

Question 12

When price = $33, quantity demanded = 460. When price = $31, quantity demanded = 500. The price elasticity of demand is _______________, making this an _____________ good in the price range between $31 and $33.

Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% change in quantity demanded) / (% change in price). Here, the change in quantity demanded is 40 (from 460 to 500), and the change in price is $2 (from $33 to $31). The percentage change in quantity demanded is 40/460 = 0.087 (or 8.7%), and the percentage change in price is 2/33 = 0.0606 (or 6.06%). Thus, PED = 0.087 / 0.0606 = 1.435, which rounds to approximately 1.33. A PED greater than 1 indicates that the good is elastic in this price range.

Question 13

Total revenue is defined as

Accepted Answer

Total revenue is calculated by multiplying the price of a good by the quantity of the good sold.

Question 14

Cross elasticity of demand measures the responsiveness of the

Accepted Answer

The answer of Cross elasticity of demand measures the responsiveness...

Question 15

Exhibit 19-3
 
-Refer to Exhibit 19-3. When price decreases from $5.50 to $4.50, the price elasticity of supply is

Accepted Answer

The price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. In this case, the quantity supplied increases from 100 to 150 units when the price decreases from $5.50 to $4.50. The percentage change in quantity supplied is (150 - 100) / 100 = 0.5. The percentage change in price is (4.50 - 5.50) / 5.50 = -0.182. Therefore, the price elasticity of supply is 0.5 / -0.182 = -2.75.

Question 16

When quantity demanded of a good increases, total revenue

Accepted Answer

When demand is elastic, an increase in quantity demanded leads to a proportionally larger increase in total revenue.

Question 17

When price = $16, quantity demanded = 200. When price = $14, quantity demanded = 225. When the firm lowered price from $16 to $14, it discovered that demand is __________ and total revenue __________ by ____________,

Accepted Answer

The answer of When price = $16, quantity demanded =...

Question 18

If the demand for a product is perfectly elastic, a tax of $1 per unit imposed on sellers will

Accepted Answer

When demand is perfectly elastic, consumers are extremely sensitive to price changes and will not accept any price increase. Therefore, the entire burden of the tax falls on the sellers, leaving the market price unchanged.

Question 19

The producer of good X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for good X is 0.75. Your best advice to the producer would be to

Accepted Answer

Since the price elasticity of demand for good X is less than 1 (inelastic), increasing the price will raise total revenue because the percentage decrease in quantity demanded will be less than the percentage increase in price.

Question 20

If a 5 percent reduction in the price of a commodity results in a 3 percent increase in the quantity demanded, demand is said to be

Accepted Answer

Demand is considered inelastic when the percentage change in quantity demanded is less than the percentage change in price, indicating that consumers are not very responsive to price changes in this scenario.

Quiz 19: Elasticity

If a small increase in the price of a good reduces quantity demanded to zero, demand is __ and the price elasticity of demand is equal to _.

Which of the following is a determinant of price elasticity of demand for good Z?

If income elasticity of demand for a good is negative, the good is a(n) __________ good.

If price elasticity of demand is 0.5, it follows that a _ percent decrease in price would cause a _ percent increase in quantity demanded.

The price elasticity of demand indicates

Exhibit 19-3 -Refer to Exhibit 19-3. When price decreases from $1.50 to $0.50, the price elasticity of supply is

Airlines that try to lower fares in order to increase revenue must believe that the demand for airline service is

If demand for a product is perfectly inelastic, a tax of $1 per unit imposed on sellers will

When the cross elasticity of demand between two goods is , the goods are .

Exhibit 19-3 -Refer to Exhibit 19-3. When price decreases from $3.50 to $2.50, the price elasticity of supply is