Question 1

In which of these instances is demand said to be perfectly inelastic?
A)An increase in price of 2% causes a decrease in quantity demanded of 2%.
B)A decrease in price of 2% causes an increase in quantity demanded of 0%.
C)A decrease in price of 2% causes a decrease in total revenue of 0%.
D)The demand curve is horizontal.

Accepted Answer

The answer of In which of these instances is demand...

Question 2

Suppose that 50 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 4 percent,the number of candy bars demanded falls to 46.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 elastic.
B)demand for candy bars in this price range is inelastic.
C)demand for candy bars in this price range is unit elastic.
D)price elasticity of demand for candy bars in this price range is 0.

Accepted Answer

The midpoint approach formula for calculating price elasticity of demand is ((Q2-Q1)/((Q1+Q2)/2))/((P2-P1)/((P1+P2)/2)). Using this formula, we get a price elasticity of demand of -2. This means that for every 1 percent increase in price, there is a 2 percent decrease in quantity demanded. Since the price elasticity of demand is greater than 1, we know that the demand for candy bars in this price range is elastic.

Question 3

As we move downward and to the right along a linear,downward-sloping demand curve,
A)slope and elasticity both remain constant.
B)slope changes but elasticity remains constant.
C)slope and elasticity both change.
D)slope remains constant but elasticity changes.

Accepted Answer

When moving downward and to the right along a linear, downward-sloping demand curve, the slope remains constant but the elasticity changes. This is because the slope represents the change in price for a given change in quantity demanded, while elasticity measures the responsiveness of quantity demanded to changes in price. As the quantity demanded decreases along the demand curve, buyers become less sensitive to price changes, leading to a decrease in elasticity.

Question 4

For a vertical demand curve,
A)slope is undefined and price elasticity of demand is equal to 0.
B)slope is equal to 0 and price elasticity of demand is undefined.
C)slope and price elasticity of demand both are undefined.
D)slope and price elasticity of demand both are equal to 0.

Accepted Answer

A vertical demand curve implies that consumers are completely unresponsive to changes in price (i.e. they will always buy the same amount regardless of price), resulting in a slope of undefined or "infinite". The price elasticity of demand formula involves dividing the percentage change in quantity by the percentage change in price, but if the percentage change in price is 0 due to the vertical demand curve, the result is 0 in the denominator and the price elasticity of demand is also undefined or "infinite".

Question 5

When we move upward and to the left along a linear demand curve,price elasticity of demand
A)first becomes smaller, then larger.
B)always becomes larger.
C)always becomes smaller.
D)first becomes larger, then smaller.

Accepted Answer

As we move upward and to the left along a linear demand curve, the price elasticity of demand increases because the percentage change in quantity demanded becomes larger relative to the percentage change in price.

Question 6

Suppose you are in charge of setting prices at a local sandwich shop.The business needs to increase its total revenue and your job is on the line.If the demand for sandwiches is elastic,you
A)should increase the price of sandwiches.
B)should decrease the price of sandwiches.
C)should not change the price of sandwiches.
D)could not determine what to do with price until you determine whether supply is elastic or inelastic.

Accepted Answer

If the demand for sandwiches is elastic, meaning that customers are price-sensitive and a change in price significantly affects the quantity demanded, then decreasing the price of sandwiches will lead to an increase in total revenue. This is because the increase in quantity demanded due to the lower price will more than offset the decrease in revenue per sandwich. Therefore, the best option in this scenario is to decrease the price of sandwiches to increase total revenue and avoid potential job loss.

Question 7

Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves of bread.This month it earned $300 in total revenue when it sold 60 loaves of bread.The price elasticity of demand for Barb's bread is
A)0.27.
B)0.58.
C)1.25.
D)1.71.

Accepted Answer

The answer of Barb's Bakery earned $200 in total revenue...

Question 8

Total revenue will be at its largest value on a linear demand curve at
A)the top of the curve, where prices are highest.
B)the midpoint of the curve.
C)the low end of the curve, where quantity demanded is highest.
D)None of the above is correct.

Accepted Answer

Total revenue is calculated by multiplying the price of a product by the quantity sold. On a linear demand curve, the price and quantity demanded are negatively related. Therefore, as the price increases, the quantity demanded will decrease, but the increase in price will compensate for the decrease in quantity resulting in an increase in total revenue. Similarly, as the price decreases, the quantity demanded will increase, but the decrease in price will compensate for the increase in quantity resulting in no change in total revenue. The midpoint of the demand curve is where the price elasticity of demand is equal to 1 and the percentage change in price equals the percentage change in quantity demanded, resulting in no change in total revenue. Therefore, total revenue will be at its largest value at the midpoint of the demand curve.

Question 9

In which of the following situations will total revenue increase?
A)Price elasticity of demand is 1.2 and the price of the good decreases.
B)Price elasticity of demand is 0.5 and the price of the good increases.
C)Price elasticity of demand is 3.0 and the price of the good decreases.
D)All of the above are correct.

Accepted Answer

The answer of In which of the following situations will...

Question 10

Moving downward and to the right along a linear demand curve,we know that total revenue
A)first increases, then decreases.
B)first decreases, then increases.
C)always increases.
D)always decreases.

Accepted Answer

The answer of Moving downward and to the right along...

Question 11

For a horizontal demand curve,
A)slope is undefined and price elasticity of demand is equal to 0.
B)slope is equal to 0 and price elasticity of demand is undefined.
C)slope and price elasticity of demand both are undefined.
D)slope and price elasticity of demand both are equal to 0.

Accepted Answer

A horizontal demand curve is perfectly elastic, meaning that consumers are extremely sensitive to price changes and will only purchase the product if the price is at a certain level. Therefore, a change in price will result in an infinite change in quantity demanded. This makes the slope of the curve equal to zero, as the curve is perfectly flat. However, the price elasticity of demand for a perfectly elastic curve is undefined because the change in quantity demanded resulting from a change in price is infinitely large, making it impossible to calculate a specific numerical value for elasticity.

Question 12

Suppose that when the price of corn is $2 per bushel,farmers can sell 10 million bushels.When the price of corn is $3 per bushel,farmers can sell 8 million bushels.Which of the following statements is true?
A)The demand for corn is income inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
B)The demand for corn is income elastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
C)The demand for corn is price inelastic, and so an increase in the price of corn will increase the total revenue of corn farmers.
D)The demand for corn is price elastic, and so an increase in the price of corn will increase the total revenue of corn farmers.

Accepted Answer

When the percentage change in quantity demanded is less than the percentage change in price, the demand is said to be price inelastic. In this case, when the price of corn increases from $2 to $3, the percentage change in quantity demanded is greater than the percentage change in price. Therefore, the demand for corn is price inelastic. When the demand is price inelastic, an increase in price will increase the total revenue of corn farmers. Hence, only option C is correct.

Question 13

When demand is unit elastic,price elasticity of demand
A)equals 1 and total revenue and price move in the same direction.
B)equals 1 and total revenue and price move in opposite directions.
C)equals 1 and total revenue does not change when price changes.
D)equals 0 and total revenue does not change when price changes.

Accepted Answer

When demand is unit elastic, a change in price results in an equal and opposite change in quantity demanded, thus total revenue does not change as the increase in price is offset by the decrease in quantity demanded. This results in a price elasticity of demand equal to 1.

Question 14

Total revenue
A)always increases as price increases.
B)increases as price increases, as long as demand is elastic.
C)decreases as price increases, as long as demand is inelastic.
D)remains unchanged as price increases when demand is unit elastic.

Accepted Answer

The answer of Total revenue
A)always increases as price increases.
B)increases as...

Question 15

You are in charge of the local city-owned golf course.You need to increase the revenue generated by the golf course in order to meet expenses.The mayor advises you to increase the price of a round of golf.The city manager recommends reducing the price of a round of golf.You realize that
A)the mayor thinks demand is elastic and the city manager thinks demand is inelastic.
B)both the mayor and the city manager think that demand is elastic.
C)both the mayor and the city manager think that demand is inelastic.
D)the mayor thinks demand is inelastic and the city manager thinks demand is elastic.

Accepted Answer

The mayor's suggestion to increase the price of a round of golf indicates that they believe demand is inelastic, meaning that an increase in price will not significantly decrease the quantity of golf rounds sold. Conversely, the city manager's suggestion to reduce the price indicates that they believe demand is elastic, meaning that a decrease in price will result in a significant increase in the quantity of golf rounds sold. Therefore, based on the information given, it is most likely that the best answer is D.

Question 16

Suppose a producer is able to separate customers into two groups,one having an inelastic demand and the other having an elastic demand.If the producer's objective is to increase total revenue,she should
A)increase the price charged to customers with the elastic demand and decrease the price charged to customers with the inelastic demand.
B)decrease the price charged to customers with the elastic demand and increase the price charged to customers with the inelastic demand.
C)charge the same price to both groups of customers.
D)increase the price for both groups of customers.

Accepted Answer

For customers with elastic demand, lowering the price increases total revenue, while for those with inelastic demand, raising the price increases total revenue.

Question 17

If the demand curve is linear and downward sloping,which of the following statements is not correct?
A)Demand is more elastic on the lower part of the demand curve than on the upper part.
B)Different pairs of points on the demand curve can result in different values of the price elasticity of demand.
C)Different pairs of points on the demand curve cannot result in different values of the slope of the demand curve.
D)Starting from a point on the upper part of the demand curve, an increase in price leads to a decrease in total revenue.

Accepted Answer

On a linear downward sloping demand curve, demand is more elastic on the upper part of the curve and less elastic on the lower part.

Question 18

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a major shoe store.The first step you would take would be to
A)increase the price of every shoe in the store.
B)look for ways to cut costs and increase profit for the store.
C)determine the price elasticity of demand for the store's products.
D)determine the price elasticity of supply for the store's products.

Accepted Answer

The first step in determining an appropriate pricing policy to increase revenue would be to determine the price elasticity of demand for the store's products. This would give an understanding of how responsive customers are to changes in price and can help inform pricing decisions that optimize revenue. Options A and B are premature steps before fully understanding the demand for the products. Option D is not relevant as the question is focusing on demand and revenue optimization.

Question 19

If a change in the price of a good results in no change in total revenue,then
A)the demand for the good must be elastic.
B)the demand for the good must be inelastic.
C)the demand for the good must be unit elastic.
D)buyers must not respond very much to a change in price.

Accepted Answer

If a change in the price of a good results in no change in total revenue, it means that the percentage change in quantity demanded is equal to the percentage change in price, resulting in a unit elastic demand for the good.

Question 20

Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9.The price elasticity of demand for Harry's Haircuts is
A)0.567.
B)0.700.
C)1.429.
D)2.200.

Accepted Answer

Using the midpoint formula: 
% change in price = [(9-5)/((9+5)/2)]*100% = 44.44%
% change in quantity = [(1800-1500)/((1800+1500)/2)]*100% = 21.43%
Price elasticity of demand = %change in quantity demanded / % change in price 
= 21.43% / 44.44%
= 0.48 (approx.)
The price elasticity of demand is less than 1, indicating that the demand for haircuts at Harry's Barber Shop is relatively inelastic. Therefore, the correct choice is B.

Quiz 5: Elasticity and Its Applications

In which of these instances is demand said to be perfectly inelastic?

Suppose that 50 candy bars are demanded at a particular price.If the price of candy bars rises from that price by 4 percent,the number of candy bars demanded falls to 46.Using the midpoint approach to calculate the price elasticity of demand,it follows that the

As we move downward and to the right along a linear,downward-sloping demand curve,

For a vertical demand curve,

When we move upward and to the left along a linear demand curve,price elasticity of demand

Suppose you are in charge of setting prices at a local sandwich shop.The business needs to increase its total revenue and your job is on the line.If the demand for sandwiches is elastic,you

Barb's Bakery earned $200 in total revenue last month when it sold 100 loaves of bread.This month it earned $300 in total revenue when it sold 60 loaves of bread.The price elasticity of demand for Barb's bread is

Total revenue will be at its largest value on a linear demand curve at

In which of the following situations will total revenue increase?

Moving downward and to the right along a linear demand curve,we know that total revenue

For a horizontal demand curve,

Suppose that when the price of corn is $2 per bushel,farmers can sell 10 million bushels.When the price of corn is $3 per bushel,farmers can sell 8 million bushels.Which of the following statements is true?

When demand is unit elastic,price elasticity of demand

Total revenue

You are in charge of the local city-owned golf course.You need to increase the revenue generated by the golf course in order to meet expenses.The mayor advises you to increase the price of a round of golf.The city manager recommends reducing the price of a round of golf.You realize that

Suppose a producer is able to separate customers into two groups,one having an inelastic demand and the other having an elastic demand.If the producer's objective is to increase total revenue,she should

If the demand curve is linear and downward sloping,which of the following statements is not correct?

You have just been hired as a business consultant to determine what pricing policy would be appropriate in order to increase the total revenue of a major shoe store.The first step you would take would be to

If a change in the price of a good results in no change in total revenue,then

Harry's Barber Shop increased its total monthly revenue from $1,500 to $1,800 when it raised the price of a haircut from $5 to $9.The price elasticity of demand for Harry's Haircuts is