Question 1

Suppose that the demand for pizza is inelastic. If a pizzeria decided to lower the price of pizza, total revenue would

Accepted Answer

The answer of Suppose that the demand for pizza is...

Question 2

If the price elasticity of demand for apples is greater than 1, an increase in apple prices will

Accepted Answer

When the price elasticity of demand is greater than 1, it means that demand is very responsive to changes in price, meaning that a small change in price will result in a larger change in quantity demanded. As a result, when the price of apples increases, the quantity demanded will decrease by a larger proportion. This means that total revenue (price x quantity) will decrease, as the increase in price is not enough to compensate for the decrease in quantity demanded. Therefore, an increase in apple prices will lower total revenue.

Question 3

What does a perfectly elastic demand curve look like? A perfectly inelastic demand curve? Explain.

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The answer of What does a perfectly elastic demand curve...

Question 4

If the market price of a product falls and as a result total revenue of firms falls, we can conclude that

Accepted Answer

This is indicative of inelastic demand, as a drop in price does not result in a significant increase in quantity demanded, thus leading to a decrease in total revenue.

Question 5

A firm could lower prices and still increase revenue if

Accepted Answer

If demand is elastic, a decrease in price would lead to a proportionally larger increase in quantity demanded, resulting in an overall increase in revenue despite the lower price.

Question 6

When the price of a textbook is $100, 60 copies are demanded; and when the price of that textbook goes up to $120, 30 copies are demanded. In the price range between $100 and $120, the demand for the textbook is

Accepted Answer

This problem requires us to use the concept of price elasticity of demand. The formula for price elasticity of demand is:

Price elasticity of demand = (% change in quantity demanded) / (% change in price)

We can use the information given in the problem to calculate the price elasticity of demand between $100 and $120:

% change in quantity demanded = (30 - 60) / 60 = -0.5
% change in price = (120 - 100) / 100 = 0.2

Price elasticity of demand = (-0.5 / 0.2) = -2.5

Since the absolute value of price elasticity of demand is greater than 1, we can conclude that the demand for the textbook is elastic in the price range between $100 and $120. Therefore, the best choice is A) elastic.

Question 7

"Unit elasticity of demand can be found everywhere along a straight-line demand curve with a slope of -1." Do you agree or disagree? Explain.

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The answer of "Unit elasticity of demand can be found...

Question 8

If the absolute price elasticity of demand for concert tickets is 0.75, an increase in ticket prices will

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The answer of If the absolute price elasticity of demand...

Question 9

If a seller lowers the price of a product when demand is price inelastic, the seller can expect revenues to

Accepted Answer

When demand is price inelastic, a decrease in price will not result in a significant increase in quantity demanded, therefore total revenue will decrease.

Question 10

Explain the three possible ranges for price elasticity of demand.

Accepted Answer

The answer of Explain the three possible ranges for price...

Question 11

A perfectly elastic demand curve exhibits

Accepted Answer

A perfectly elastic demand curve means that consumers are extremely sensitive to price changes, and even a slight increase in price will cause the quantity demanded to drop to zero.

Question 12

When total revenue and price are directly related, demand is

Accepted Answer

When total revenue and price are directly related, it means that an increase in price leads to an increase in total revenue and a decrease in price leads to a decrease in total revenue. This is the case with inelastic demand because the quantity demanded does not change significantly with a change in price. Therefore, the best choice is B.

Question 13

When total revenue and price are inversely related, demand is

Accepted Answer

When total revenue and price are inversely related, it means that as the price increases, the total revenue decreases and vice versa. This is only possible if the demand is elastic, meaning that a small change in price results in a relatively larger change in the quantity demanded. If the demand were unit-elastic or inelastic, an increase in price would lead to a proportional or smaller decrease in quantity demanded, respectively, resulting in a smaller decrease in total revenue. Therefore, C) elastic is the best choice.

Question 14

No matter what the price of coffee is in the cafeteria, Jack spends $20 a week on coffee. We can conclude that the absolute value of the price elasticity of demand for coffee for Jack is

Accepted Answer

The answer of No matter what the price of coffee...

Question 15

If demand for a good is perfectly inelastic, then

Accepted Answer

If demand for a good is perfectly inelastic, it means that no matter how much the price changes, quantity demanded will remain the same. Therefore, a price increase would not cause any change in quantity demanded.

Question 16

If a good has an absolute price elasticity of 1, the demand for the good is

Accepted Answer

When the absolute price elasticity of a good is 1, it means that the percentage change in quantity demanded is equal to the percentage change in price. This indicates that the demand for the good is unit elastic, meaning that a change in price will result in an equal and opposite change in quantity demanded.

Question 17

A perfectly inelastic demand curve exhibits

Accepted Answer

In a perfectly inelastic demand curve, the quantity demanded remains the same regardless of changes in price. This means that the demand is not responsive to changes in price and has zero elasticity. Therefore, the answer is A.

Question 18

If a good has an absolute price elasticity of 0, the demand for the good is

Accepted Answer

If a good has an absolute price elasticity of 0, it means that there is no change in demand for the good with any change in its price. This indicates a perfectly inelastic demand.

Question 19

When total revenue remain unchanged when there is a change in price, demand is

Accepted Answer

If total revenue (TR) remains the same when there is a change in price, it indicates that the percentage change in quantity demanded (Qd) is equal to the percentage change in price. This means that the elasticity of demand is equal to 1 or what is known as unit-elastic. In this situation, consumers are sensitive to price changes, but not so much that they will significantly alter their demand, meaning that a change in price will have an equal but opposite effect on quantity demanded, keeping the total revenue constant.

Question 20

Which of the following is NOT characteristic of a good with elastic demand?

Accepted Answer

A good with elastic demand has a price elasticity of demand greater than 1, meaning that buyers are relatively sensitive to price changes and the percentage change in quantity demanded is greater than the percentage change in price. Option B is also true because when the price is increased, total revenue decreases for a good with elastic demand. Therefore, option A is the incorrect statement as the good with elastic demand would have an absolute price elasticity of demand greater than 1, not less than 1.

Quiz 19: Demand and Supply Elasticity