Question 1

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

Accepted Answer

The value of the price elasticity of demand measures the percentage change in quantity demanded in response to a one percent change in price. Therefore, a price elasticity of demand of 0.2 means that a 1 percent decrease in price will result in a 0.2 percent increase in quantity demanded. To find out the percentage change in quantity demanded resulting from a different percentage change in price, we can multiply the price elasticity by the percentage change in price. For example, if the price is decreased by 5 percent (which is a 5-fold increase compared to a 1 percent decrease), we can expect the quantity demanded to increase by 0.2 * 5 = 1 percent. So option C is the correct answer.

Question 2

Exhibit 5-1 Demand curve

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

Accepted Answer

The answer of Exhibit 5-1 Demand curve

In Exhibit 5-1, the...

Question 3

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:

Accepted Answer

The short-run price elasticity of demand for airline travel is low (0.05), indicating that customers are not very responsive in changing their demand for flights in the short run when prices increase. However, the long-run elasticity is high (2.36), indicating that over time customers will adjust their travel behavior and seek out alternatives (e.g. driving, other forms of transportation) or adjust their timing of travel. Therefore, in the long run, airlines will collect less revenue from travelers who book well in advance as they will seek out cheaper alternatives, while short-notice travelers may not have alternatives and will be willing to pay the higher prices, making it less likely for airlines to lose money on them.

Question 4

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:

Accepted Answer

The decrease in price has led to a significant increase in demand, indicating that the price elasticity of demand is greater than 1, making it elastic.

Question 5

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:

Accepted Answer

When the price increases and Avital's revenues increase more than Joshua's, it indicates that Joshua's demand decreases more significantly with the price increase, meaning his customers are more sensitive to price changes. This sensitivity to price changes is described as elasticity. Therefore, Joshua faces a more elastic demand curve, as his sales decrease more significantly with a price increase compared to Avital's.

Question 6

Exhibit 5-2 Price and quantity demanded data $$\begin{array} { | c | c | } 
\hline \text { Price } & \text { Quantity Demanded } \
\hline 5 & 20 \
4 & 25 \
3 & 30 \
2 & 35 \
1 & 40 \
\hline
\end{array}$$ Using Exhibit 5-2, what is the price elasticity of demand when the price falls from five dollars to four?

Accepted Answer

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

Question 7

Exhibit 5-1 Demand curve

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

Accepted Answer

The price elasticity of demand is calculated as the ratio of the percentage change in quantity demanded to the percentage change in price. Between points b and c, the quantity demanded changes from 60 to 80, a 33.3% increase, while the price changes from $8 to $5, a 37.5% decrease. Therefore, the price elasticity of demand is (33.3/37.5), which equals 0.636.

Question 8

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

Accepted Answer

A price elasticity of demand equal to one means that a 1% increase in price results in a 1% decrease in demand, and a 1% decrease in price results in a 1% increase in demand. Therefore, changing the price will not have a significant impact on revenue. The firm should keep the price where it is to maximize revenue.

Question 9

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:

Accepted Answer

A price elasticity of demand of 4.5 indicates that demand is relatively elastic, meaning that a change in price will lead to a proportionally larger change in quantity demanded. Therefore, a 10 percent increase in price would be expected to cause a 45 percent decrease in quantity demanded (4.5 times the 10 percent increase in price).

Question 10

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

Accepted Answer

If an increase in price leads to an increase in total revenue, then the demand is inelastic. This means that the percentage change in quantity demanded is less than the percentage change in price.

Question 11

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

Accepted Answer

If demand for a good is elastic, a small change in the price will result in a large change in the quantity demanded. This indicates that the price elasticity of demand is greater than one.

Question 12

Exhibit 5-1 Demand curve

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

Accepted Answer

The answer of Exhibit 5-1 Demand curve

In Exhibit 5-1, between...

Question 13

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

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 14

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?

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, potentially leading to higher overall revenue.

Question 15

Exhibit 5-1 Demand curve

If demand price elasticity is 2, consumers would:

Accepted Answer

The answer of Exhibit 5-1 Demand curve

If demand price elasticity...

Question 16

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

Accepted Answer

When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, this means that the demand is elastic. Elastic demand means that consumers are responsive to changes in price, and will decrease their quantity demanded by a greater percentage than the increase in price percentage. As a result, total revenue decreases when the price increases. Therefore, the correct choice is C.

Question 17

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:

Accepted Answer

When total revenue remains the same as the price decreases, it indicates that the percentage change in quantity demanded is exactly offsetting the percentage change in price, which is characteristic of unit elasticity.

Question 18

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

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 19

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

Accepted Answer

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

Question 20

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

Accepted Answer

The convention of taking the absolute value is used for price elasticity of demand because it's always a negative number, regardless of whether demand is elastic or inelastic. This convention allows economists to focus on the magnitude of the elasticity and whether it's greater than or less than one to determine the responsiveness of consumer demand to a change in price.

Quiz 5: Price Elasticity of Demand and Supply

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

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

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:

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:

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 b and c, the price elasticity of demand measures

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

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:

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

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

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

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

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?

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

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

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:

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

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

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