Question 1

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively.A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

Accepted Answer

A 2-percent increase in price will increase total revenue if the demand is inelastic (elasticity < 1). D2 (0.5) and D4 (0.18) are inelastic.

Question 2

The price elasticity of demand is a measure of the

Accepted Answer

The price elasticity of demand measures how responsive buyers are to changes in the price of a good, meaning how much the quantity demanded will change with a change in price. It is a measure of how sensitive demand is to changes in price.

Question 3

Blossom, Inc., sells 500 bottles of perfume a month when the price is $7.A huge increase in resource costs forces Blossom to raise the price to $9, and the firm only manages to sell 460 bottles of perfume.Using the midpoint formula, the price elasticity of demand coefficient is

Accepted Answer

Using the midpoint formula, we can calculate the price elasticity of demand coefficient:

Price elasticity of demand = [(Q2 - Q1) / ((Q1 + Q2) / 2)] / [(P2 - P1) / ((P1 + P2) / 2)]

where Q1 and P1 are the initial quantity and price, and Q2 and P2 are the new quantity and price.

Plugging in the numbers, we get:

Price elasticity of demand = [(460 - 500) / ((460 + 500) / 2)] / [(9 - 7) / ((9 + 7) / 2)]
= [-40 / 480] / [2 / 8]
= -0.0833 / 0.25
= -0.333

Since the coefficient is negative, we know that the demand is inversely related to price (i.e., as price goes up, demand goes down).

In addition, because the absolute value of the coefficient is less than 1, we know that the demand is inelastic (i.e., the percent change in quantity demanded is less than the percent change in price).

Therefore, the best choice is C: 0.33 and inelastic.

Question 4

Total revenue falls as the price of a good is raised, if the demand for the good is

Accepted Answer

When the demand for a good is elastic, consumers are very responsive to changes in price. As a result, if the price of the good is raised, the quantity demanded will decrease significantly, leading to a decrease in total revenue.

Question 5

When the price of a product is increases by 15 percent, the quantity demanded decreases by 10 percent.We can therefore conclude that the demand for this product is

Accepted Answer

The answer of When the price of a product is...

Question 6

We would expect the coefficient of cross elasticity of demand for DVD players and DVDs to be positive.Difficulty: 03 Hard
Learning Objective: 06-05 Apply cross elasticity of demand and income elasticity of demand.Topic: Cross Elasticity and Income Elasticity of Demand

Accepted Answer

The answer of We would expect the coefficient of cross...

Question 7

The total revenue received by sellers of a good is computed by

Accepted Answer

Total revenue is calculated by multiplying the price of a good or service by the quantity sold. This gives the total amount of money received by the sellers for the products they have sold.

Question 8

In interpreting the Ed value as either elastic or inelastic, we look at the

Accepted Answer

We look at the absolute value of the Ed coefficient because elasticity is determined by the magnitude of the coefficient regardless of its sign. If the absolute value of the coefficient is less than 1, the demand is considered inelastic, meaning a change in price has a proportionally smaller effect on the quantity demanded. If the absolute value is greater than 1, the demand is considered elastic, meaning a change in price has a proportionally larger effect on the quantity demanded.

Question 9

A 4 percent reduction in the price of a product has zero effect on the dollar amount of consumer expenditure on the product.The price elasticity of demand is

Accepted Answer

The price elasticity of demand is equal to 1, indicating unit elasticity. This means that the percentage change in quantity demanded is exactly equal to the percentage change in price, resulting in no change in total expenditure.

Question 10

We use percentage changes in the formula for estimating the price elasticity of demand coefficient in order to

Accepted Answer

The answer of We use percentage changes in the formula...

Question 11

We use the midpoint formula in computing the price elasticity of demand coefficient in order to

Accepted Answer

The midpoint formula ensures that the coefficient value is independent of whether price goes up or down, and this is important in interpreting the elasticity coefficient accurately. If we use the simple percentage change formula, we might end up with different values depending on whether price increased or decreased, which would be confusing and could lead to inaccurate conclusions. The midpoint formula eliminates this problem by basing the calculation on the average of the initial and final prices and quantities, and this helps to provide a more accurate and intuitive measure of how responsive demand is to changes in price.

Question 12

The price-elasticity of demand is always negative because of

Accepted Answer

The law of demand states that as the price of a good increases, the quantity demanded decreases, and as the price of a good decreases, the quantity demanded increases. Therefore, the relationship between price and quantity demanded is always negative, regardless of how it is measured (percentage changes or absolute changes).

Question 13

When the price of a product is increased 10 percent, the quantity demanded decreases 15 percent.The price-elasticity of demand coefficient for this product is

Accepted Answer

The price-elasticity-of-demand coefficient is calculated as the percentage change in quantity demanded divided by the percentage change in price, which in this case is -15%/10% = -1.5 (ignoring the negative sign, as elasticity is often considered in absolute terms).

Question 14

The price of season tickets to a performing arts theater decreases by 3 percent.As a result, the quantity demanded increases by 6 percent.The price elasticity of demand for season tickets is

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is 6% / 3% = 2.

Question 15

The price elasticity of demand for a popular sporting event is 1.2.If the price of a ticket to this event increases by 10 percent, the quantity of tickets demanded will

Accepted Answer

The price elasticity of demand of 1.2 indicates that a 10% increase in price will result in a 12% decrease in quantity demanded (10% x 1.2 = 12%). Therefore, the quantity of tickets demanded will decrease by 12 percent.

Question 16

Which of the following statements is inconsistent with an elastic demand curve?

Accepted Answer

An elastic demand curve shows that as the price increases, the quantity demanded decreases significantly. This means that if the price increases, total revenue will decrease because the decrease in quantity demanded is proportionally larger than the increase in price. Therefore, statement B is inconsistent with an elastic demand curve.

Question 17

The price-elasticity of demand coefficient, Ed, is measured in terms of

Accepted Answer

The price-elasticity of demand coefficient, Ed, measures the responsiveness of quantity demanded to changes in price, and is calculated as the percentage change in quantity demanded divided by the percentage change in price. Therefore, the correct choice is C, which states that Ed is measured in terms of percentage change in price and percentage change in quantity demanded.

Question 18

The total revenue received by sellers of a good is the same amount as the

Accepted Answer

Total revenue is calculated by multiplying the price of the good by the quantity sold. The price is the amount paid by the buyers for each unit of the good. Therefore, the total revenue received by sellers is equal to the total amount spent on the good by the buyers.

Question 19

If the price-elasticity coefficient for a good is 1.75, the demand for that good is described as

Accepted Answer

A price-elasticity coefficient greater than 1 indicates that demand is elastic, meaning that changes in price have a significant impact on the quantity demanded.

Question 20

If the price elasticity of demand for a product is equal to 0.5, then a 10 percent decrease in price will increase quantity demanded by

Accepted Answer

The price elasticity of demand measures the responsiveness of quantity demanded to a change in price. A price elasticity of 0.5 indicates that quantity demanded is relatively inelastic, meaning a 10 percent decrease in price will only result in a 5 percent increase in quantity demanded (which is half of 10 percent). Therefore, the correct answer is C.

Quiz 6: Elasticity