Question 1

An increase in price will cause a firm's total revenue to increase if demand is price elastic.

Accepted Answer

If demand is price elastic, an increase in price will lead to a proportionally larger decrease in quantity demanded, causing total revenue to decrease.

Question 2

Exhibit
The elasticity in the vicinity of five different points along a demand curve varies as follows:
 $\begin{array}{lccccc} 
\text { Point }& A & B & C & D & E \
\text { Elasticity} & 1.25 & 0.3 & 1.0 & 0.2 & 2.1
\end{array}$
-Refer to Exhibit. At which of these points would a price increase be accompanied by an increase in total revenue?
A)B and D
B)A and E
C)A, C, and E
D)A and D

Accepted Answer

At points B and D, the elasticity is less than 1, indicating inelastic demand. In such cases, a price increase leads to an increase in total revenue.

Question 3

Exhibit
The elasticity in the vicinity of five different points along a demand curve varies as follows:
 $\begin{array}{lccccc} 
\text { Point }& A & B & C & D & E \
\text { Elasticity} & 1.25 & 0.3 & 1.0 & 0.2 & 2.1
\end{array}$
-Refer to Exhibit. At which of these points would sellers of a product want to increase price to increase their total revenue?
A)B and D
B)A and E
C)A, C, and E
D)A and D

Accepted Answer

Sellers would want to increase the price at points where the demand is inelastic (elasticity < 1), as this would increase total revenue. Points B and D have elasticities of 0.3 and 0.2, respectively, indicating inelastic demand.

Question 4

Exhibit
The elasticity in the vicinity of five different points along a demand curve varies as follows:
 $\begin{array}{lccccc} 
\text { Point }& A & B & C & D & E \
\text { Elasticity} & 1.25 & 0.3 & 1.0 & 0.2 & 2.1
\end{array}$
-Refer to Exhibit. In the vicinity of which of these points would a price decrease be accompanied by an increase in total revenue?
A)B and D
B)A and E
C)A and D
D)B, C, and D

Accepted Answer

The answer of Exhibit
The elasticity in the vicinity of five...

Question 5

Exhibit
The elasticity in the vicinity of five different points along a demand curve varies as follows:
 $\begin{array}{lccccc} 
\text { Point }& A & B & C & D & E \
\text { Elasticity} & 1.25 & 0.3 & 1.0 & 0.2 & 2.1
\end{array}$
-Refer to Exhibit. In the vicinity of which of these points would sellers of a product want to decrease the price to increase their total revenue?
A)B and D
B)A and E
C)A and D
D)B, C, and D

Accepted Answer

The answer of Exhibit
The elasticity in the vicinity of five...

Question 6

Exhibit
The elasticity in the vicinity of five different points along a demand curve varies as follows:
 $\begin{array}{lccccc} 
\text { Point }& A & B & C & D & E \
\text { Elasticity} & 1.25 & 0.3 & 1.0 & 0.2 & 2.1
\end{array}$
-Refer to Exhibit. In the vicinity of which of these points would sellers find that their total revenue remained essentially unchanged as they changed their price?
A)B and D
B)A and E
C)C
D)None of the above. That could never happen.

Accepted Answer

At point C, elasticity is 1.0, which means that a 1% change in price will lead to a 1% change in total revenue.

Question 7

If an increase in prices increases total revenue for a product in the short run, in the long run, it will:
A)Increase total revenue by more.
B)Increase total revenue by less.
C)Decrease total revenue.
D)Either b. or c. could result in the long run.

Accepted Answer

In the long run, demand may become more elastic as consumers find substitutes or change their consumption habits, leading to either a smaller increase or a decrease in total revenue.

Question 8

If a decrease in prices increases total revenue for a product in the short run, in the long run, it will:
A)Increase total revenue by more.
B)Increase total revenue by less.
C)Decrease total revenue.
D)Either b. or c. could result in the long run.

Accepted Answer

The answer of If a decrease in prices increases total...

Question 9

The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:
A)0.5, indicating relatively elastic demand.
B)0.5, indicating relatively inelastic demand.
C)2.0, indicating relatively elastic demand.
D)2.0, indicating relatively inelastic demand.

Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. The percentage change in quantity demanded is ((6,000 - 12,000) / 12,000) * 100 = -50%. The percentage change in price is ((7 - 5) / 5) * 100 = 40%. The elasticity is |-50% / 40%| = 1.25, which is closer to 2.0 than 0.5, indicating relatively elastic demand.

Question 10

For a given change in demand:
A)Quantity will change relatively more in the long run than the short run.
B)Quantity will change relatively more in the short run than the long run.
C)Price will change relatively more in the long run than the short run.
D)Both b. and c. are true.

Accepted Answer

In the long run, firms have more time to adjust their production levels, leading to a greater change in quantity compared to the short run.

Question 11

For a given change in demand:
A)The quantity exchanged will change relatively more in the long run than the short run.
B)The quantity exchanged will change relatively more in the short run than the long run.
C)The market price will change relatively more in the short run than the long run.
D)Both a. and c. are true.

Accepted Answer

In the long run, supply is more elastic, allowing quantity exchanged to adjust more. In the short run, prices adjust more due to less flexible supply.

Question 12

If the elasticity of demand for a good is greater than the government expected:
A)Consumers will bear more of the burden of the tax than the government expected.
B)Producers will bear more of the burden of the tax than the government expected.
C)The tax will raise less revenue than the government expected.
D)Both b. and c. are true.

Accepted Answer

The answer of If the elasticity of demand for a...

Question 13

If the elasticity of supply for a good is greater than the government expected:
A)Consumers will bear more of the burden of the tax than the government expected.
B)Producers will bear more of the burden of the tax than the government expected.
C)The tax will raise more revenue than the government expected.
D)Both a. and c. are true.

Accepted Answer

If the elasticity of supply is greater than expected, producers can more easily adjust their production in response to the tax, shifting more of the tax burden onto consumers.

Question 14

If the elasticity of supply for a good is greater than the government expected:
A)Consumers will bear more of the burden of the tax than the government expected.
B)Producers will bear more of the burden of the tax than the government expected.
C)The tax will raise less revenue than the government expected.
D)Both a. and c. are true.

Accepted Answer

If the elasticity of supply is greater than expected, producers can more easily adjust their production, leading to a larger burden on consumers and potentially less tax revenue than anticipated.

Question 15

The definition of cross-elasticity of demand with regard to two products X and Y is:
A)the percentage change in the quantity of X demanded divided by the percentage change in the quantity of Y demanded.
B)the percentage change in the price of Y divided by the percentage change in the quantity of X demanded.
C)the percentage change in the price of Y divided by the percentage change in the price of X.
D)the percentage change in the demand of one good (good X) divided by the percentage change in the price of another good (good Y).

Accepted Answer

The answer of The definition of cross-elasticity of demand with...

Question 16

The income elasticities of Products A and B and their cross-price elasticities with respect to Product C are as follows:??Income ElasticityCross-Price ElasticityProduct A+1.7-0.6Product B-0.8+0.9From this information, one can conclude that:
A)Product A is inferior, Product B is normal, Product A is a complement to Product C, and Product B is a substitute for Product C.
B)Product A is normal, Product B is inferior, Product A is a complement to Product C, and Product B is a substitute for Product C.
C)Product A is normal, Product B is inferior, Product A is a substitute for Product C, and Product B is a complement to Product C.
D)Product A is inferior, Product B is normal, Product A is a substitute for Product C, and Product B is a complement to Product C.

Accepted Answer

The answer of The income elasticities of Products A and...

Question 17

The income elasticities of Products A and B and their cross price elasticities with respect to Product C are as follows:??Income ElasticityCross Price ElasticityProduct A-2.1+2.5Product B+0.6-0.75From this information, one can conclude that:
A)Product A is normal, Product B is inferior, Product A is a complement to Product C, and Product B is a substitute for Product C.
B)Product A is normal, Product B is inferior, Product A is a substitute for Product C, and Product B is a complement to Product C.
C)Product A is inferior, Product B is normal, Product A is a substitute for Product C, and Product B is a complement to Product C.
D)Product A is inferior, Product B is normal, Product A is a complement to Product C, and Product B is a substitute for Product C.

Accepted Answer

Product A is inferior because its income elasticity is negative, indicating demand decreases as income increases. Product B is normal because its income elasticity is positive, indicating demand increases as income increases. Product A is a substitute for Product C because its cross price elasticity is positive, indicating demand for A increases as the price of C increases. Product B is a complement to Product C because its cross price elasticity is negative, indicating demand for B decreases as the price of C increases.

Question 18

If the income elasticity of demand for good A was 3.9 and the income elasticity of demand for B was 0.2:
A)Both good A and good B are normal.
B)Both good A and good B are inferior.
C)Good A is normal and good B is inferior.
D)Good A is inferior and good B is normal.

Accepted Answer

Income elasticity of demand greater than zero indicates a normal good. Since both goods have positive income elasticity (3.9 for A and 0.2 for B), both are normal goods.

Quiz 2: Elasticities

An increase in price will cause a firm's total revenue to increase if demand is price elastic.

If an increase in prices increases total revenue for a product in the short run, in the long run, it will:

If a decrease in prices increases total revenue for a product in the short run, in the long run, it will:

The price of a new toy increases from $5 to $7 and the quantity demanded decreases from 12,000 to 6,000 per month as a result. Based on this information, the price elasticity of demand (in absolute terms) is estimated to be equal to:

For a given change in demand:

For a given change in demand:

If the elasticity of demand for a good is greater than the government expected:

If the elasticity of supply for a good is greater than the government expected:

If the elasticity of supply for a good is greater than the government expected:

The definition of cross-elasticity of demand with regard to two products X and Y is:

The income elasticities of Products A and B and their cross-price elasticities with respect to Product C are as follows:??Income ElasticityCross-Price ElasticityProduct A+1.7-0.6Product B-0.8+0.9From this information, one can conclude that:

The income elasticities of Products A and B and their cross price elasticities with respect to Product C are as follows:??Income ElasticityCross Price ElasticityProduct A-2.1+2.5Product B+0.6-0.75From this information, one can conclude that:

If the income elasticity of demand for good A was 3.9 and the income elasticity of demand for B was 0.2: