Question 1

A decrease in price causes:

Accepted Answer

A decrease in price leads to both a price effect - which increases revenue by selling more units - and a quantity effect - which decreases revenue by selling at a lower price. Therefore, both effects occur simultaneously.

Question 2

When the quantity effect outweighs the price effect, a price _____ will cause a(n) _____ in total revenue.

Accepted Answer

When the quantity effect outweighs the price effect, a price increase will lead to a decrease in total revenue because the loss in revenue from selling fewer units is greater than the gain from the higher price per unit.

Question 3

A decrease in price:

Accepted Answer

A decrease in price does not cause a quantity effect when demand is perfectly inelastic because consumers' quantity demanded does not change regardless of price changes in such cases.

Question 4

Consider the demand curve in the graph shown. Suppose the price is initially $6 and then falls to $4. Which of the following statements is true?

Accepted Answer

According to the law of demand, as the price falls, quantity demanded increases. Therefore, a decrease in price from $6 to $4 will result in an increase in quantity demanded. However, the decrease in price will also lead to a decrease in total revenue, since the price effect (lowering price per unit) outweighs the quantity effect (selling more units due to lower price). This is known as the price elasticity of demand being greater than 1, which indicates that the demand for the product is elastic. Therefore, the correct answer is D.

Question 5

Suppose the price of a good is $6 and quantity demanded is 10 units. When price decreases to $5, quantity demanded increases to 13 units. What happened to total revenue and what does this indicate?

Accepted Answer

Total revenue initially is $6*10 = $60. After the price decrease, total revenue is $5*13 = $65. The increase in total revenue with a decrease in price indicates demand is elastic.

Question 6

Suppose the price of a good is $5 and quantity demanded is 10 units. When price increases to $6, quantity demanded decreases to 9 units. What does this indicate?

Accepted Answer

The decrease in quantity demanded as a result of an increase in price, with a relatively small change in quantity compared to the change in price, indicates that demand is inelastic. This means consumers are not highly responsive to price changes.

Question 7

Consider a market in which price is initially $2 and rises to $6. If we know total revenue fell as a result of this price change, then we also know that the _____ effect outweighed the _____ effect, and the market is more likely to be represented by _____.

Accepted Answer

The answer of  Consider a market in which price...

Question 8

Consider the demand curve in the graph shown. Suppose price is initially $11 and falls to $8. Which of the following statements is true?

Accepted Answer

The answer of  Consider the demand curve in the...

Question 9

Suppose the price of a good is $5 and quantity demanded is 10 units. When price increases to $6, quantity demanded decreases to 9 units. What happened to total revenue and what does this indicate?

Accepted Answer

Total revenue initially is $5 * 10 = $50. After the price increase, total revenue is $6 * 9 = $54. The increase in total revenue despite a price increase indicates that demand is inelastic, as consumers' quantity demanded does not decrease proportionally to the price increase.

Question 10

Suppose the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What does this indicate?

Accepted Answer

The change in price caused a decrease in quantity demanded, indicating a negative relationship between price and quantity demanded. However, the percentage decrease in quantity demanded (10/50 = 0.2 or 20%) was greater than the percentage increase in price (2/10 = 0.1667 or 16.67%), indicating that demand is sensitive to changes in price, making it elastic. Therefore, the correct choice is (B) where the quantity effect is larger than the price effect, indicating that demand is elastic.

Question 11

An increase in price:

Accepted Answer

An increase in price may either increase or decrease revenue. If the price effect (increase in revenue per unit sold) outweighs the quantity effect (decrease in units sold due to the higher price), then revenue will increase. However, if the quantity effect is greater than the price effect, then revenue will decrease. Therefore, choice A and D are incorrect, and choice B is only true if the price effect is larger than the quantity effect.

Question 12

Suppose the price elasticity of demand for eggs is −0.27. Therefore, an increase in the price of eggs will cause:

Accepted Answer

The price elasticity of demand for eggs is inelastic (absolute value less than 1), meaning that a price increase will lead to a less than proportionate decrease in quantity demanded, thus increasing total revenue for egg suppliers.

Question 13

A price increase will cause an increase in total revenue when:

Accepted Answer

When the price effect outweighs the quantity effect, the increase in price results in a more-than-proportional increase in revenue. This happens when demand is inelastic, meaning that consumers are not very responsive to changes in price and are willing to pay more for the product. In this case, even though the quantity sold may decrease as a result of the price increase, the increase in price will result in a greater increase in revenue due to the higher price per unit.

Question 14

An increase in price causes:I. a decrease in revenue due to the price effect.II. an increase in revenue due to the price effect.III. a decrease in revenue due to the quantity effect.IV. an increase in revenue due to the quantity effect.

Accepted Answer

An increase in price typically leads to an increase in revenue due to the price effect (people are paying more for each unit sold), which is statement II. However, it can also lead to a decrease in revenue due to the quantity effect (fewer units are sold because of the higher price), which is statement III.

Question 15

Demand for a good is inelastic if:

Accepted Answer

Inelastic demand means that consumers are not very responsive to changes in price. Thus, when the price of the good increases, total revenue (price times quantity sold) will increase because the increase in price will not significantly reduce the quantity demanded. On the other hand, if demand is elastic, consumers are very responsive to changes in price, and total revenue will decrease when price increases because the decrease in quantity demanded will more than offset the increase in price.

Question 16

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price decreases to $8, quantity demanded increases to 60 units. What happened to total revenue and what does this indicate?

Accepted Answer

Total revenue initially is $500 (50 units * $10) and decreases to $480 (60 units * $8) when the price drops, indicating demand is inelastic because a price decrease led to a decrease in total revenue.

Question 17

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What happened to total revenue and what does this indicate?

Accepted Answer

When the price increased from $10 to $12, the quantity demanded decreased from 50 units to 40 units. This means that the demand is elastic, as the percentage decrease in quantity demanded is greater than the percentage increase in price. As a result, total revenue decreased from $500 ($10 x 50) to $480 ($12 x 40). When demand is elastic, an increase in price leads to a decrease in total revenue.

Question 18

Consider a market in which price is initially $6 and falls to $2. If we know that the price effect outweighed the quantity effect, we know the market is _____ and is more likely to be represented by _____.

Accepted Answer

The answer of  Consider a market in which price...

Question 19

Demand for a good is inelastic if:

Accepted Answer

When demand is inelastic, a decrease in price leads to a decrease in total revenue because the percentage change in quantity demanded is less than the percentage change in price.

Question 20

Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?

Accepted Answer

When the price falls from $6 to $4, the quantity demanded increases from 8 to 12. The quantity effect (increase in quantity demanded) will not be enough to offset the price effect (decrease in price per unit), resulting in a decrease in total revenue. Therefore, the price effect will outweigh the quantity effect, and total revenue will fall.

Quiz 4: Elasticity

A decrease in price causes:

When the quantity effect outweighs the price effect, a price _ will cause a(n) _ in total revenue.

A decrease in price:

Consider the demand curve in the graph shown. Suppose the price is initially $6 and then falls to $4. Which of the following statements is true?

Suppose the price of a good is $6 and quantity demanded is 10 units. When price decreases to $5, quantity demanded increases to 13 units. What happened to total revenue and what does this indicate?

Suppose the price of a good is $5 and quantity demanded is 10 units. When price increases to $6, quantity demanded decreases to 9 units. What does this indicate?

Consider a market in which price is initially $2 and rises to $6. If we know total revenue fell as a result of this price change, then we also know that the ___ effect outweighed the _ effect, and the market is more likely to be represented by ___.

Consider the demand curve in the graph shown. Suppose price is initially $11 and falls to $8. Which of the following statements is true?

Suppose the price of a good is $5 and quantity demanded is 10 units. When price increases to $6, quantity demanded decreases to 9 units. What happened to total revenue and what does this indicate?

Suppose the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What does this indicate?

An increase in price:

Suppose the price elasticity of demand for eggs is −0.27. Therefore, an increase in the price of eggs will cause:

A price increase will cause an increase in total revenue when:

An increase in price causes:I. a decrease in revenue due to the price effect.II. an increase in revenue due to the price effect.III. a decrease in revenue due to the quantity effect.IV. an increase in revenue due to the quantity effect.

Demand for a good is inelastic if:

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price decreases to $8, quantity demanded increases to 60 units. What happened to total revenue and what does this indicate?

Suppose that the price of a good is $10 and quantity demanded is 50 units. When price increases to $12, quantity demanded decreases to 40 units. What happened to total revenue and what does this indicate?

Consider a market in which price is initially $6 and falls to $2. If we know that the price effect outweighed the quantity effect, we know the market is _ and is more likely to be represented by _.

Demand for a good is inelastic if:

Consider the demand curve in the graph shown. Suppose price is initially $6 and falls to $4. Which of the following statements is true?