Question 1

If the value of the price elasticity of demand is 0.2, this means that:
A) a 20 percent decrease in price causes a 1 percent increase in quantity demanded.
B) a 0.2 percent decrease in price causes a 1 percent increase in quantity demanded.
C) a 5 percent decrease in price causes a 1 percent increase in quantity demanded.
D) a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded.

Accepted Answer

The price elasticity of demand measures the responsiveness of quantity demanded to changes in price. A value of 0.2 means that for a 5 percent decrease in price, quantity demanded will increase by 1 percent (0.2/1 = 0.2/0.05 = 4). Therefore, option C is correct. Option A is incorrect because it implies that a 20 percent decrease in price causes a 100 percent increase in quantity demanded, which is too extreme. Option B is incorrect because it implies that a 0.2 percent decrease in price causes a 100 percent increase in quantity demanded, which is also too extreme. Option D is incorrect because it implies that a 0.2 percent decrease in price causes a 0.2 percent increase in quantity demanded, which is not consistent with the definition of price elasticity of demand.

Question 2

If Pete raises his price of muffins from $2 to $3 and his total revenue increases from $35,000 to $38,000, then:
A) the demand for Pete's muffins in this range is elastic.
B) the demand for Pete's muffins in this range is inelastic.
C) the demand for Pete's muffins in this range is unit elastic.
D) the percentage change in quantity demanded must exceed the percentage change in product price.

Accepted Answer

Since the increase in price resulted in an increase in total revenue, the demand for Pete's muffins in this range is inelastic. If the demand were elastic, an increase in price would result in a decrease in total revenue. Unit elastic demand would mean that the percentage change in quantity demanded is exactly equal to the percentage change in product price. The fourth choice is not necessarily true in all cases and does not answer the question directly.

Question 3

Since it is always a negative number, economists use the convention of taking the absolute value of:
A) income elasticity of demand.
B) cross price elasticity of demand.
C) price elasticity of supply.
D) price elasticity of demand.

Accepted Answer

The convention of taking the absolute value is applied only to the price elasticity of demand since it is always negative due to the inverse relationship between price and quantity demanded. Taking the absolute value allows the elasticity to be expressed in a positive number, which makes it easier to interpret. Absolute values are not necessary for income elasticity of demand or cross price elasticity of demand as they can be positive or negative depending on the nature of the relationship between two variables. Price elasticity of supply can be positive or negative depending on the availability of resources to produce goods, but it is not conventionally expressed in absolute value.

Question 4

If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:
A) raise prices 1 percent.
B) lower prices 1 percent.
C) raise prices until the elasticity becomes very high.
D) keep the price where it is.

Accepted Answer

When the price elasticity of demand is equal to one, it means that a 1% change in price will result in a 1% change in quantity demanded. Therefore, the firm should keep the price where it is to maximize revenue. If the firm were to raise or lower prices, it would result in a decrease in total revenue.

Question 5

A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:
A) the demand curve is horizontal, reflecting infinite price elasticity.
B) if the price is lowered further total revenue will increase.
C) the demand curve for bus tickets must have shifted to the right.
D) the firm is operating in a range of the demand curve that is unit elastic.

Accepted Answer

The fact that total revenues remain the same when the price of a bus ticket is reduced indicates that the percentage change in quantity demanded is exactly offset by the percentage change in price, which is characteristic of unit elasticity of demand.

Question 6

You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?
A) Mary is correct if the demand for tickets is price inelastic.
B) Mary is incorrect if the demand for tickets is price inelastic.
C) Mary is correct. The increase in ticket prices will always increase revenue.
D) Mary is incorrect. The increase in ticket prices will never increase revenue.

Accepted Answer

Mary is correct if the demand for tickets is price inelastic because in such a case, an increase in price does not significantly reduce the quantity demanded, leading to an increase in total revenue.

Question 7

The short-run price elasticity of demand for airline travel is 0.05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:
A) collect less revenue from short-notice travelers.
B) collect more revenue from travelers who book well in advance.
C) lose money on short-notice travelers.
D) collect less revenue from travelers who book well in advance.

Accepted Answer

In the short run, demand is inelastic (0.05), so revenue increases with price hikes. In the long run, demand is elastic (2.36), so revenue decreases as consumers are more responsive to price changes.

Question 8

Avital and Joshua each have their own business selling lemonade in front of their houses. When they each charge 25 cents per glass, their total revenues are equal. However, when they each charge 40 cents per glass, Avital's revenues are bigger than Joshua's revenues. This is because:
A) Joshua faces a more inelastic demand curve.
B) Avital faces a more elastic demand curve.
C) Joshua faces a more elastic demand curve.
D) Avital faces a less inelastic demand curve.

Accepted Answer

When Avital's revenues increase more than Joshua's as the price increases, it indicates that Joshua's demand decreases more sharply with price increases, meaning his demand is more elastic. Elastic demand means consumers are more sensitive to price changes.

Question 9

Exhibit 5-1 Demand curve
​

In Exhibit 5-1, between points a and b, the price elasticity of demand is:
A) 0.67.
B) 1.5.
C) 2.0.
D) 1.0.

Accepted Answer

The answer of Exhibit 5-1 Demand curve
​

In Exhibit 5-1, between...

Question 10

Which statement about price elasticity of demand along a linear demand curve is true ?
A) As the quantity demanded increases, so does the buyer's sensitivity to price.
B) When price elasticity of demand is equal to 1, consumers are indifferent to subtle price changes.
C) The ratio of current price to quantity demanded is a good estimate of the elasticity of demand.
D) As the prices of goods increase, the elasticity of demand increases.

Accepted Answer

The answer of Which statement about price elasticity of demand...

Question 11

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:
A) 4.5 percent decrease in quantity demanded.
B) 4.5 percent increase in quantity demanded.
C) 45 percent decrease in quantity demanded.
D) 45 percent increase in quantity demanded.

Accepted Answer

The price elasticity of demand (PED) formula states that PED = (% change in quantity demanded) / (% change in price). Given that the elasticity is 4.5, a 10% increase in price would result in a (% change in quantity demanded) of -45% (since PED is negative in this case). Therefore, the expected decrease in quantity demanded would be 45%, as stated in option C.

Question 12

Exhibit 5-1 Demand curve
​

If demand price elasticity is 2, consumers would:
A) buy twice as much of the product in response to a 10 percent decrease in prie.
B) require a 2 percent drop in price to increase their purchases by 1 percent.
C) buy 2 percent more of the product in response to a 1 percent decrease in price.
D) buy twice as much of the product in response to a 1 percent decrease in price.

Accepted Answer

The answer of Exhibit 5-1 Demand curve
​

If demand price elasticity...

Question 13

Exhibit 5-2 Price and quantity demanded data

Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?
A) 1.
B) 1.25.
C) 0.8.
D) 2.0.

Accepted Answer

The answer of Exhibit 5-2 Price and quantity demanded data

Using...

Question 14

If the quantity of bread demanded rises 2 percent when the price of bread declines 10 percent, then the price elasticity of demand is:
A) 0.2.
B) 2.
C) 5.
D) 10.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price, which is (2% / 10%) = 0.2.

Question 15

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:
A) inelastic.
B) elastic.
C) unit elastic.
D) inferior.

Accepted Answer

When the price decreases, the quantity demanded increases leading to an elastic demand. We can observe a significant change in quantity demanded due to a change in price.

Question 16

Exhibit 5-1 Demand curve
​

In Exhibit 5-1, between points b and c, the price elasticity of demand measures
A) 0.425.
B) 1.571.
C) 0.143
D) 0.636.

Accepted Answer

The answer of Exhibit 5-1 Demand curve
​

In Exhibit 5-1, between...

Question 17

If demand for a good is elastic, then the price elasticity will be:
A) equal to one.
B) equal to zero.
C) greater than one.
D) less than one.

Accepted Answer

If demand for a good is elastic, it means that a change in price will cause a larger change in the quantity demanded. This is reflected in a price elasticity of greater than one.

Question 18

An economist estimates that the price elasticity of demand for disposable diapers is 0.67. This suggests that disposable diaper producers could:
A) advertise more to raise the price elasticity of demand.
B) encourage more parents to use cloth diapers.
C) lower the price of disposable diapers to raise more revenue.
D) raise the price of disposable diapers to raise more revenue.

Accepted Answer

Since the Price Elasticity of Demand is 0.67, which is less than 1, it suggests that disposable diapers are a relatively inelastic good. This means that producers can raise the price of disposable diapers to increase their revenue, as the increase in price would result in a smaller decrease in demand. Alternatively, if the producers lower the price of the diapers, the increase in demand would not be significant enough to make up for the decrease in price, resulting in a decrease in revenue. Therefore, the best choice would be to raise the price of disposable diapers to raise more revenue.

Question 19

Exhibit 5-1 Demand curve
​

In Exhibit 5-1, the demand curve between points a and b is:
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly elastic.

Accepted Answer

The answer of Exhibit 5-1 Demand curve
​

In Exhibit 5-1, the...

Question 20

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:
A) demand is inelastic.
B) total revenue increases as a result of the price increase
C) total revenue decreases as a result of the price increase.
D) demand is unit elastic.

Accepted Answer

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, demand is considered elastic. This means that consumers are highly responsive to changes in price and will reduce their purchases significantly when prices increase. As a result, total revenue will decrease when prices are increased, as the decrease in quantity demanded will offset the increase in price. Therefore, the correct choice is C.

Quiz 5: Price Elasticity of Demand and Supply

If the value of the price elasticity of demand is 0.2, this means that:

If Pete raises his price of muffins from $2 to $3 and his total revenue increases from $35,000 to $38,000, then:

Since it is always a negative number, economists use the convention of taking the absolute value of:

If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:

A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:

You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?

The short-run price elasticity of demand for airline travel is 0.05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:

Avital and Joshua each have their own business selling lemonade in front of their houses. When they each charge 25 cents per glass, their total revenues are equal. However, when they each charge 40 cents per glass, Avital's revenues are bigger than Joshua's revenues. This is because:

Exhibit 5-1 Demand curve In Exhibit 5-1, between points a and b, the price elasticity of demand is:

Which statement about price elasticity of demand along a linear demand curve is true ?

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

Exhibit 5-1 Demand curve If demand price elasticity is 2, consumers would:

Exhibit 5-2 Price and quantity demanded data Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

If the quantity of bread demanded rises 2 percent when the price of bread declines 10 percent, then the price elasticity of demand is:

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:

Exhibit 5-1 Demand curve In Exhibit 5-1, between points b and c, the price elasticity of demand measures

If demand for a good is elastic, then the price elasticity will be:

An economist estimates that the price elasticity of demand for disposable diapers is 0.67. This suggests that disposable diaper producers could:

Exhibit 5-1 Demand curve In Exhibit 5-1, the demand curve between points a and b is:

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:

Quiz 5: Price Elasticity of Demand and Supply

If the value of the price elasticity of demand is 0.2, this means that:

If Pete raises his price of muffins from $2 to $3 and his total revenue increases from $35,000 to $38,000, then:

Since it is always a negative number, economists use the convention of taking the absolute value of:

If a revenue-maximizing firm is told that the price elasticity of demand is equal to one, it should:

A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:

You are part of a local community theater group. It is the goal of the group to increase the amount of revenue earned through ticket sales. Mary says the obvious solution is to increase ticket prices. Is Mary correct?

The short-run price elasticity of demand for airline travel is 0.05, while the long-run elasticity is 2.36. This means that a significant increase in airline ticket prices will cause airline companies to:

Avital and Joshua each have their own business selling lemonade in front of their houses. When they each charge 25 cents per glass, their total revenues are equal. However, when they each charge 40 cents per glass, Avital's revenues are bigger than Joshua's revenues. This is because:

Exhibit 5-1 Demand curve ​ In Exhibit 5-1, between points a and b, the price elasticity of demand is:

Which statement about price elasticity of demand along a linear demand curve is true ?

If the price elasticity of demand for football tickets is estimated to be 4.5, then a 10 percent increase in football ticket prices would be expected to cause a:

Exhibit 5-1 Demand curve ​ If demand price elasticity is 2, consumers would:

Exhibit 5-2 Price and quantity demanded data Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

If the quantity of bread demanded rises 2 percent when the price of bread declines 10 percent, then the price elasticity of demand is:

If Sam, the Pizza Man, lowers the price of his pizzas from $6 to $5 and finds that sales increase from 400 to 600 pizzas per week, then the demand for Sam's pizzas in this range is:

Exhibit 5-1 Demand curve ​ In Exhibit 5-1, between points b and c, the price elasticity of demand measures

If demand for a good is elastic, then the price elasticity will be:

An economist estimates that the price elasticity of demand for disposable diapers is 0.67. This suggests that disposable diaper producers could:

Exhibit 5-1 Demand curve ​ In Exhibit 5-1, the demand curve between points a and b is:

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:

Exhibit 5-1 Demand curve In Exhibit 5-1, between points a and b, the price elasticity of demand is:

Exhibit 5-1 Demand curve If demand price elasticity is 2, consumers would:

Exhibit 5-1 Demand curve In Exhibit 5-1, between points b and c, the price elasticity of demand measures

Exhibit 5-1 Demand curve In Exhibit 5-1, the demand curve between points a and b is: