Question 1

Suppose that 50 hot dogs are demanded at a particular price.If the price of hot dogs rises from that price by 5 percent,the number of hot dogs demanded falls to 48.Using the midpoint approach to calculate the price elasticity of demand,it follows that the
A) demand for hot dogs in this price range is unit elastic.
B) price increase will decrease the total revenue of hot dog sellers.
C) price elasticity of demand for hot dogs in this price range is about 1.22.
D) price elasticity of demand for hot dogs in this price range is about 0.82.

Accepted Answer

The answer of Suppose that 50 hot dogs are demanded...

Question 2

Which of the following is not possible?
A) Demand is elastic, and a decrease in price causes an increase in revenue.
B) Demand is unit elastic, and a decrease in price causes an increase in revenue.
C) Demand is inelastic, and an increase in price causes an increase in revenue.
D) Demand is perfectly inelastic, and an increase in price causes an increase in revenue.

Accepted Answer

If demand is unit elastic, then a decrease in price will lead to an equal increase in quantity demanded, resulting in no change in total revenue. Therefore, option B is not possible.

Question 3

When demand is inelastic,the price elasticity of demand is
A) less than 1, and price and total revenue will move in the same direction.
B) less than 1, and price and total revenue will move in opposite directions.
C) greater than 1, and price and total revenue will move in the same direction.
D) greater than 1, and price and total revenue will move in opposite directions.

Accepted Answer

When demand is inelastic, the price elasticity of demand is less than 1. This means that a change in price will result in a proportionately smaller change in quantity demanded. As a result, price and total revenue will move in the same direction. When price increases, total revenue will also increase, and when price decreases, total revenue will decrease.

Question 4

On a downward-sloping linear demand curve,total revenue reaches its maximum value at the
A) midpoint of the demand curve.
B) lower end of the demand curve.
C) upper end of the demand curve.
D) It is impossible to tell without knowing prices and quantities demanded.

Accepted Answer

Total revenue (TR) is calculated by multiplying the price (P) by the quantity demanded (Q). On a linear demand curve, the slope is constant, meaning that price and quantity demanded move in opposite directions. As price increases, quantity demanded decreases and vice versa. At the upper end of the demand curve, prices are high but the quantity demanded is low, resulting in a relatively low total revenue. At the lower end of the demand curve, prices are low but the quantity demanded is high, also resulting in a relatively low total revenue. The midpoint of the demand curve represents the point at which prices and quantity demanded are in balance, maximizing total revenue. Therefore, the answer is A.

Question 5

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?
A) 0.2
B) 1
C) 1.5
D) All of the above could be correct.

Accepted Answer

If the price elasticity of demand is less than 1 (inelastic), an increase in price will lead to an increase in total revenue. A price elasticity of 0.2 indicates inelastic demand.

Question 6

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?
A) 0.5
B) 1
C) 1.5
D) All of the above could be correct.

Accepted Answer

If the price elasticity of demand is less than 1 (inelastic), a decrease in price will decrease total revenue because the percentage change in quantity demanded is less than the percentage change in price.

Question 7

How does total revenue change as one moves downward and to the right along a linear demand curve?
A) It always increases.
B) It always decreases.
C) It first increases, then decreases.
D) It is unaffected by a movement along the demand curve.

Accepted Answer

As one moves downward and to the right along a linear demand curve, the quantity demanded increases but the price decreases. Initially, the increase in quantity demanded results in an increase in total revenue. However, as price continues to decrease, the increase in quantity demanded is not enough to offset the decrease in price, resulting in a decrease in total revenue. Therefore, total revenue first increases and then decreases.

Question 8

When demand is inelastic,an increase in price will cause
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue but an increase in quantity demanded.
D) no change in total revenue but a decrease in quantity demanded.

Accepted Answer

The answer of When demand is inelastic,an increase in price...

Question 9

Suppose that 500 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 10 percent,the number of candy bars demanded falls to 480.Using the midpoint approach to calculate the price elasticity of demand,it follows that the
A) demand for candy bars in this price range is unit elastic.
B) price increase will decrease the total revenue of candy bar sellers.
C) price elasticity of demand for candy bars in this price range is about 0.41.
D) price elasticity of demand for candy bars in this price range is about 0.24.

Accepted Answer

Using the midpoint approach formula, we have:

Price elasticity of demand = (percentage change in quantity demanded) / (percentage change in price)
= [(480-500)/((480+500)/2)] / [(10/100)/((10/100)+1)]
= -20/490 * 10/11
= -0.8182

However, the question asks for the absolute value of price elasticity of demand, which is 0.8182. Rounding to two decimal places, this is approximately 0.41. Therefore, choice C is correct.

Note that the demand for candy bars in this price range is inelastic (less than 1), which means that a price increase will increase the total revenue of candy bar sellers (choice B is incorrect). Also, the elasticity value is not unit elastic (equal to 1), so choice A is incorrect. Finally, the elasticity value is not 0.24, so choice D is incorrect.

Question 10

An increase in price causes an increase in total revenue when demand is
A) elastic.
B) inelastic.
C) unit elastic.
D) All of the above are possible.

Accepted Answer

The answer of An increase in price causes an increase...

Question 11

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?
A) 0
B) 0.2
C) 1
D) 2.1

Accepted Answer

A price elasticity of demand greater than 1 (elastic demand) means that a decrease in price will lead to a proportionally larger increase in quantity demanded, thus increasing total revenue.

Question 12

When demand is inelastic,a decrease in price will cause
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue but an increase in quantity demanded.
D) no change in total revenue but a decrease in quantity demanded.

Accepted Answer

When demand is inelastic, a decrease in price will result in a proportionately smaller increase in quantity demanded, as consumers are not very responsive to changes in price. Thus, the decrease in price will cause a proportionately larger decrease in total revenue, resulting in a decrease in total revenue.

Question 13

Suppose that when the price of ginger ale is $2 per bottle,firms can sell 4 million bottles.When the price of ginger ale is $3 per bottle,firms can sell 2 million bottles.Which of the following statements is true?
A) The demand for ginger ale is income inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
B) The demand for ginger ale is income elastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
C) The demand for ginger ale is price inelastic, so an increase in the price of ginger ale will increase the total revenue of ginger ale producers.
D) The demand for ginger ale is price elastic, so an increase in the price of ginger ale will decrease the total revenue of ginger ale producers.

Accepted Answer

The fact that the quantity demanded decreases from 4 million to 2 million as the price increases from $2 to $3 indicates that the demand for ginger ale is price elastic. This means that an increase in the price of ginger ale will lead to a decrease in the total revenue of ginger ale producers since the increase in price will not be enough to offset the decrease in quantity demanded. Therefore, Option D is the correct answer.

Question 14

A city wants to raise revenues to build a new municipal swimming pool next year.The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues.The city manager suggests that the city lower the price of admission to raise revenues.Who is correct?
A) the mayor
B) the city manager
C) The answer depends on the price elasticity of demand.
D) The answer depends on the costs of construction of the new municipal swimming pool.

Accepted Answer

The correct answer depends on the price elasticity of demand, which is the responsiveness of consumers to a change in price. If demand for admission to the current municipal pools is highly elastic, raising the price will lead to a decrease in revenue. Alternatively, lowering the price of admission may increase the number of visitors and therefore, revenue. On the other hand, if demand is highly inelastic, raising the price may lead to an increase in revenue. So, the city needs to determine the price elasticity of demand before making a decision.

Question 15

When demand is elastic,a decrease in price will cause
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue but an increase in quantity demanded.
D) no change in total revenue but a decrease in quantity demanded.

Accepted Answer

The answer of When demand is elastic,a decrease in price...

Question 16

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?
A) 0
B) 0.5
C) 1
D) 1.5

Accepted Answer

The price elasticity of demand (PED) measures the responsiveness of the quantity demanded of a good to a change in its price. If an increase in price decreases revenue, it means that the PED is greater than 1 (i.e. elastic demand). Therefore, the only choice that fits is D, with a PED of 1.5. Choices A, B, and C are all for goods with inelastic demand, where an increase in price would actually increase revenue.

Question 17

Suppose that demand is inelastic within a certain price range.For that price range,
A) an increase in price would increase total revenue because the decrease in quantity demanded is proportionately less than the increase in price.
B) an increase in price would decrease total revenue because the decrease in quantity demanded is proportionately greater than the increase in price.
C) a decrease in price would increase total revenue because the increase in quantity demanded is proportionately smaller than the decrease in price.
D) a decrease in price would not affect total revenue.

Accepted Answer

Inelastic demand means that consumers are not very responsive to changes in price. Thus, if the price increases, the decrease in quantity demanded will be proportionately less than the increase in price, leading to an increase in total revenue. Conversely, if the price decreases, the increase in quantity demanded will be proportionately smaller than the decrease in price, leading to a decrease in total revenue.

Question 18

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price.If the owner is only interested in increasing revenue,she should
A) lower the price of the cinnamon rolls.
B) leave the price of the cinnamon rolls unchanged.
C) raise the price of the cinnamon rolls.
D) reduce costs.

Accepted Answer

The answer of The local bakery makes such great cinnamon...

Question 19

A city wants to raise revenues to build a new municipal swimming pool next year.The mayor suggests that the city raise the price of admission to the current municipal pools this year to raise revenues.The city manager suggests that the city lower the price of admission to raise revenues.Who is correct?
A) Both the mayor and city manager would be correct if demand were price elastic.
B) Both the mayor and city manager would be correct if demand were price inelastic.
C) The mayor would be correct if demand were price elastic; the city manager would be correct if demand were price inelastic.
D) The mayor would be correct if demand were price inelastic; the city manager would be correct if demand were price elastic.

Accepted Answer

The answer of A city wants to raise revenues to...

Question 20

When demand is elastic,an increase in price will cause
A) an increase in total revenue.
B) a decrease in total revenue.
C) no change in total revenue but an increase in quantity demanded.
D) no change in total revenue but a decrease in quantity demanded.

Accepted Answer

When demand is elastic, consumers are very sensitive to changes in price. As a result, an increase in price will lead to a proportionally larger decrease in quantity demanded. This means that total revenue (price x quantity) will decrease when the price increases, resulting in a decrease in total revenue.

Quiz 5: Elasticity and Its Application

Suppose that 50 hot dogs are demanded at a particular price.If the price of hot dogs rises from that price by 5 percent,the number of hot dogs demanded falls to 48.Using the midpoint approach to calculate the price elasticity of demand,it follows that the

Which of the following is not possible?

When demand is inelastic,the price elasticity of demand is

On a downward-sloping linear demand curve,total revenue reaches its maximum value at the

Which of the following could be the price elasticity of demand for a good for which an increase in price would increase revenue?

Which of the following could be the price elasticity of demand for a good for which a decrease in price would decrease revenue?

How does total revenue change as one moves downward and to the right along a linear demand curve?

When demand is inelastic,an increase in price will cause

Suppose that 500 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 10 percent,the number of candy bars demanded falls to 480.Using the midpoint approach to calculate the price elasticity of demand,it follows that the

An increase in price causes an increase in total revenue when demand is

Which of the following could be the price elasticity of demand for a good for which a decrease in price would increase revenue?

When demand is inelastic,a decrease in price will cause

Suppose that when the price of ginger ale is $2 per bottle,firms can sell 4 million bottles.When the price of ginger ale is $3 per bottle,firms can sell 2 million bottles.Which of the following statements is true?

When demand is elastic,a decrease in price will cause

Which of the following could be the price elasticity of demand for a good for which an increase in price would decrease revenue?

Suppose that demand is inelastic within a certain price range.For that price range,

The local bakery makes such great cinnamon rolls that consumers do not respond much at all to a change in the price.If the owner is only interested in increasing revenue,she should

When demand is elastic,an increase in price will cause