Question 1

If demand is elastic, the _____ effect dominates the _____ effect, and a(n) _____ in price will cause total revenue to rise.
A) price; quantity; decrease
B) price; quantity; increase
C) quantity; price; increase.
D) quantity; price; decrease

Accepted Answer

The answer of If demand is elastic, the _____ effect...

Question 2

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?
A) Total revenue will rise.
B) Total revenue will fall.
C) Total revenue will remain unchanged.
D) The information is insufficient to answer the question.

Accepted Answer

A 1% decrease in the quantity of oranges will cause a 1.8% increase in the price of oranges to maintain the same level of total revenue. If one-third of the orange crop is destroyed, the quantity of oranges available will drop by more than 1%, and the price increase will not be sufficient to make up for the loss. Therefore, total revenue from oranges will fall.

Question 3

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:
A) lower prices in each state.
B) raise prices in each state.
C) lower prices in South Carolina and raise prices in Alabama.
D) leave prices unchanged in South Carolina and raise prices in Alabama.

Accepted Answer

A price cut in South Carolina would result in a greater percentage increase in quantity demanded than the percentage decrease in price, based on the price elasticity of demand being greater than 1. Therefore, revenue would increase. Similarly, a price increase in Alabama would result in a greater percentage increase in revenue than the percentage decrease in quantity demanded because the price elasticity of demand is less than 1. Therefore, revenue would increase. Thus, lowering prices in South Carolina and raising prices in Alabama would result in an increase in revenue for fishing lure manufacturers.

Question 4

The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenues will increase, then the tuition increase will _____ the number of students enrolling by _____.
A) reduce; less than 5%
B) reduce; more than 5%
C) reduce; exactly 5%
D) increase; 5%

Accepted Answer

If the tuition increase reduces the number of students enrolling by less than 5%, the overall revenue will still increase because the percentage increase in tuition outweighs the percentage decrease in enrollment.

Question 5

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:
A) more price-elastic as departure time approaches.
B) less price-elastic as departure time approaches.
C) always unit elastic.
D) very sensitive to price changes as the time of departure approaches.

Accepted Answer

As the departure date approaches, consumers are often less sensitive to price changes because they have fewer alternatives and may need to travel urgently, making demand less price-elastic.

Question 6

Total revenue is:
A) total sales less total cost.
B) the price of a good times the quantity of the good that is sold.
C) the price effect times the quantity effect.
D) the price of a good divided by the amount of the good sold.

Accepted Answer

Total revenue is calculated by multiplying the price of a good by the quantity of the good that is sold. Therefore, option B is the correct answer. Option A is incorrect because total revenue does not take into account total cost. Option C is incorrect as it uses the terms "price effect" and "quantity effect," which are not commonly used in the calculation of total revenue. Option D is incorrect as it divides the price of a good by the amount sold, rather than multiplying them together.

Question 7

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 180. If the price is $1.55, total revenue is _____, and if the price is $2.00, total revenue is _____.
A) $360; $440
B) $341; $279
C) $440; $279
D) $341; $360

Accepted Answer

Total revenue is calculated by multiplying the price of the good by the quantity demanded. At $1.55, the total revenue is $1.55 * 220 = $341. At $2.00, the total revenue is $2.00 * 180 = $360.

Question 8

A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will:
A) fall to 0.
B) not change.
C) fall slightly.
D) increase slightly.

Accepted Answer

Since the demand for beef is perfectly elastic, any increase in the price will result in a decrease in quantity demanded to zero. Consumers will simply switch to buying beef from other suppliers who still offer it at the previous market price.

Question 9

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?
A) Total revenue will remain unchanged.
B) Total revenue will fall.
C) Total revenue will rise.
D) The information is insufficient to answer the question.

Accepted Answer

With a price elasticity of demand of 2.22, we know that demand is relatively elastic. This means that if the supply of fresh tomatoes were to increase by 20%, we would expect the price to fall. However, the magnitude of the price decrease is dependent on the elasticity of demand. If the percentage change in quantity demanded is greater than the percentage change in price (i.e. elasticity > 1), then total revenue will increase. In this case, since the elasticity of demand is 2.22, we can expect that the percentage change in quantity demanded will be greater than the percentage change in price, and so total revenue from fresh tomatoes will increase.

Question 10

Which of the following is NOT true regarding a price-elastic demand curve?
A) Total revenue increases when the price falls.
B) The absolute value of the price elasticity is a fraction less than 1.
C) The absolute value of the price elasticity is greater than 1.
D) The percent changes in the quantity demanded exceed the percent changes in the price for any small change in price.

Accepted Answer

A price-elastic demand curve means that the absolute value of the price elasticity is greater than 1, not a fraction less than 1.

Question 11

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _____, and if the price is $0.95, total revenue is _____.
A) $209; $204.25
B) $209; $236.50
C) $236.50; $209
D) $180.50; $209

Accepted Answer

The answer of When the price of chocolate-covered peanuts decreases...

Question 12

The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?
A) Total revenue will remain unchanged.
B) Total revenue will fall.
C) Total revenue will rise.
D) The information is insufficient to answer the question.

Accepted Answer

The price elasticity of demand (PED) for lettuce is 2.58, which indicates that for every 1% increase in the price of lettuce, the quantity demanded will decrease by 2.58%.

Now, if an insect infestation destroys 10% of the nation's lettuce crop, the supply of lettuce will decrease. This will lead to an increase in the price of lettuce, assuming demand remains constant.

Since the PED is greater than 1, a price increase will result in a decrease in the quantity demanded that is proportionally larger than the percentage increase in price. Thus, total revenue will fall because the decrease in quantity demanded will outweigh the increase in price. Therefore, the correct answer is B.

Question 13

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?
A) Quantity demanded will stay the same; total revenue will fall.
B) Quantity demanded will decrease; total revenue will rise.
C) Total revenue will remain unchanged.
D) Quantity demanded will not change; total revenue will rise.

Accepted Answer

The price elasticity of demand for gasoline being 0.4 indicates that the demand for gasoline is inelastic in the short run. This means that a price increase will lead to a smaller percentage decrease in quantity demanded. Therefore, total revenue (price x quantity) will rise because the effect of the price increase on revenue is greater than the effect of the decrease in quantity demanded.

Question 14

A perfectly price-inelastic demand curve is:
A) horizontal.
B) downward-sloping.
C) upward-sloping.
D) vertical.

Accepted Answer

A perfectly price-inelastic demand curve is vertical because the quantity demanded does not change regardless of changes in price.

Question 15

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 160. In this price range, the demand for chocolate-covered peanuts is _____, and total revenue will _____ when the price increases.
A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease

Accepted Answer

When the quantity demanded decreases significantly in response to a small increase in price, the demand is considered elastic. Therefore, the demand for chocolate-covered peanuts in this price range is elastic. When the price of a product has an inverse relationship with its total revenue, the demand is elastic. Since the price of chocolate-covered peanuts increased from $1.55 to $2.00, and the quantity demanded decreased from 220 to 160, the total revenue from selling chocolate-covered peanuts will decrease.

Question 16

Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will _____ because the _____ effect is greater than the _____ effect.
A) decrease; quantity; price
B) increase; price; quantity
C) not change; quantity; price
D) increase; quantity; price

Accepted Answer

The total revenue for barley producers will increase because the price effect (a 16.53% increase in price) is greater than the quantity effect (a 3.28% decrease in quantity purchased). This means that the overall revenue from selling barley will be higher even though slightly less barley is being sold, due to the higher price per unit.

Question 17

The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will have _____ prices, _____ quantities sold, and _____ incomes.
A) lower; greater; lower
B) lower; greater; higher
C) lower; lower; lower
D) higher; higher; higher

Accepted Answer

When the demand for agricultural output is price inelastic, an increase in supply due to a bumper crop will lead to a proportionately larger decrease in price, and as a result, farmers will have lower prices. However, the increase in quantity sold will be relatively smaller, as demand is not very responsive to changes in price. This means that farmers will generate lower incomes despite selling more, leading to a decrease in their overall income.

Question 18

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. In this price range, the demand for chocolate covered peanuts is _____, and total revenue will _____ when price decreases.
A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease

Accepted Answer

The answer of When the price of chocolate-covered peanuts decreases...

Question 19

Sonik, a wireless phone company, tested the effect of a price reduction for text messaging. It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent tripled. This means:
A) the demand for text messaging is inelastic in this price range.
B) the demand curve for text messaging shifted to the right.
C) the supply curve for text messaging shifted to the left.
D) the demand for text messaging is elastic in this price range.

Accepted Answer

The demand for text messaging is elastic in this price range because the quantity demanded increased significantly (tripled) in response to a price reduction, indicating a high sensitivity to price changes.

Question 20

The university hopes to raise more revenue by increasing parking fees. This plan will work only if:
A) the price effect is larger than the quantity effect.
B) the price effect is smaller than the quantity effect.
C) the price effect and quantity effect are the same.
D) there is no price or quantity effect.

Accepted Answer

The plan will only work if the price effect is larger than the quantity effect. This means that the increased revenue from higher parking fees needs to outweigh any decrease in demand for parking due to the higher fees. If the quantity effect is larger than the price effect, the university may actually end up decreasing its revenue as fewer people park on campus.

Quiz 6: Elasticity

If demand is elastic, the ___ effect dominates the _ effect, and a(n) ___ in price will cause total revenue to rise.

Suppose the price elasticity of demand for oranges is 1.8. If a fall frost destroys one-third of the nation's orange crop, how will that affect total revenue from oranges, all other things unchanged?

Suppose the price elasticity of demand for fishing lures equals 1.5 in South Carolina and 0.63 in Alabama. To increase revenue, fishing lure manufacturers should:

The university president believes that increasing student tuition by 5% will increase revenues. If the president is correct that revenues will increase, then the tuition increase will _ the number of students enrolling by _.

Sometimes airlines raise ticket prices as the flight departure date approaches in the hope of increasing revenue on the assumption that consumer demand is:

Total revenue is:

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 180. If the price is $1.55, total revenue is _, and if the price is $2.00, total revenue is _.

A rancher in Oklahoma decides to raise the price of her beef by 19% over the prevailing market price. If the demand for beef is perfectly elastic, this rancher's quantity demanded will:

The price elasticity of demand for fresh tomatoes has been estimated to be 2.22. If a new insecticide and fertilizer treatment yields a 20% increase in the nation's fresh tomato crop, how will that affect total revenue from fresh tomatoes, all other things unchanged?

Which of the following is NOT true regarding a price-elastic demand curve?

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. If the price is $1.10, total revenue is _, and if the price is $0.95, total revenue is _.

The price elasticity of demand for lettuce has been estimated to be 2.58. If an insect infestation destroys 10% of the nation's lettuce crop, how will that affect total revenue from lettuce, all other things unchanged?

The price elasticity of demand for gasoline in the short run has been estimated to be 0.4. If a war in the Middle East causes the price of oil (from which gasoline is made) to increase, how will that affect total revenue from gasoline in the short run, all other things unchanged?

A perfectly price-inelastic demand curve is:

When the price of chocolate-covered peanuts increases from $1.55 to $2.00, the quantity demanded decreases from 220 to 160. In this price range, the demand for chocolate-covered peanuts is _, and total revenue will _ when the price increases.

Suppose the price of barley increases by 16.53%. If breweries buy 3.28% less barley after the price increase, the total revenue for barley producers will ___ because the _ effect is greater than the ___ effect.

The demand for agricultural output is price inelastic. This means that if farmers, taken collectively, have a bumper crop, they will have ___ prices, _ quantities sold, and ___ incomes.

When the price of chocolate-covered peanuts decreases from $1.10 to $0.95, the quantity demanded increases from 190 bags to 215 bags. In this price range, the demand for chocolate covered peanuts is _, and total revenue will _ when price decreases.

Sonik, a wireless phone company, tested the effect of a price reduction for text messaging. It lowered prices from $0.08 to $0.04 per message and found that the number of messages sent tripled. This means:

The university hopes to raise more revenue by increasing parking fees. This plan will work only if: