Question 1

Table 6-6
 
-Refer to Table 6-6.Based on the data in the table and using the midpoint formula, between a price of $9.99 and $14.99, the price elasticity of demand for books is

Accepted Answer

Using the midpoint formula:

% change in quantity demanded = [(Q2 - Q1) / ((Q1 + Q2) / 2)] * 100

% change in price = [(P2 - P1) / ((P1 + P2) / 2)] * 100

Given:

Q1 = 50,000 
Q2 = 40,000 
P1 = $9.99 
P2 = $14.99

% change in quantity demanded = [(40,000 - 50,000) / ((40,000 + 50,000) / 2)] * 100 = -20%

% change in price = [(14.99 - 9.99) / ((14.99 + 9.99) / 2)] * 100 = 40%

Price elasticity of demand = % change in quantity demanded / % change in price = -20% / 40% = -0.5

Since the absolute value of elasticity is greater than 1, demand is elastic.

Therefore, the price elasticity of demand for books between a price of $9.99 and $14.99 is -1.35.

Question 2

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, then an increase in tolls will result in

Accepted Answer

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, then an increase in tolls will still result in an increase in total revenue because the demand for toll roads is relatively inelastic. Therefore, even if toll rates go up, people would still continue to use these roads, resulting in an increase in revenue. As a result, the toll road company will benefit from the increase in toll rates.

Question 3

Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1.Increasing ticket prices will increase the total revenue from ticket sales.

Accepted Answer

If the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1, it means that the demand for tickets is relatively elastic. This implies that if ticket prices are increased, the quantity demanded will decrease by a proportionately larger amount, resulting in a decrease in total revenue from ticket sales. Therefore, increasing ticket prices will not increase the total revenue from ticket sales.

Question 4

If the price elasticity of demand is unit elastic, a 10 percent increase in price will result in a 10 percent increase in revenue.

Accepted Answer

If the price elasticity of demand is unit elastic, it means that the percentage change in quantity demanded is equal to the percentage change in price. Therefore, a 10% increase in price will result in a 10% decrease in quantity demanded. As a result, total revenue will remain the same (there will be no increase or decrease).

Question 5

When Audrina raised the price of her homemade cookies, her total revenue increased.This suggests that the demand for Audrina's cookies is elastic.

Accepted Answer

If Audrina raised the price of her cookies and her total revenue increased, it suggests that the demand for her cookies is inelastic. If the demand were elastic, then an increase in price would lead to a decrease in total revenue. In this case, however, customers are willing to pay the higher price indicating that the demand for the cookies is relatively insensitive to price changes.

Question 6

Which of the following correctly comments on the following statement? "The only way to increase the revenue from selling a product is to increase the product's price."

Accepted Answer

This statement is not universally true. Revenue will increase as the price of the product increases only if demand is inelastic. If demand is elastic, increasing the price will lead to a decrease in quantity demanded, thus decreasing the revenue. Therefore, the statement is not true in all cases.

Question 7

Assume that you own a small boutique hotel.In an attempt to raise revenue, you reduce your rates by 20 percent.However, your revenue falls.What does this indicate about the demand for your boutique hotel rooms?

Accepted Answer

The fall in revenue despite a price reduction indicates that the demand is inelastic, meaning that the percentage decrease in price led to a smaller percentage increase in quantity demanded.

Question 8

Which of the following statements is true?

Accepted Answer

This statement describes the concept of inelastic demand. If a price increase leads to an increase in total revenue, demand is inelastic, meaning that consumers are willing to pay more for the good and are not very sensitive to changes in price. Conversely, if a price decrease leads to a decrease in total revenue, demand is elastic, meaning that consumers are very sensitive to changes in price and may choose to purchase substitute goods instead. Option A is incorrect as a decrease in total revenue indicates elastic demand, not inelastic demand. Option B is incorrect as total revenue cannot remain constant if demand is perfectly elastic. Option D is incorrect as an increase in total revenue indicates inelastic demand, not elastic demand.

Question 9

Article Summary
Tickets for the Los Angeles production of the musical 'Hamilton' sold out quickly after going on sale in April. These tickets, sold through the box office at the Pantages Theater and through authorized seller Ticketmaster, were priced as low as $85 for mezzanine seats and $125 for orchestra seats. Once the tickets sold out, the only available seats for the musical which ran from August 11 through December 30, were through ticket resellers such as StubHub and SeatGeek, with tickets selling at an average price of $467 to $510. Ticket prices were the most expensive for August dates, with an average price of $624, and fell for dates in the following months, with December prices averaging $335. 
Source: Nicholas Cheng, "Don't have a ticket to 'Hamilton' yet? It's going to cost you," Los Angeles Times, August 19, 2017.
-Refer to the Article Summary.Based on the difference between the face value of 'Hamilton' tickets sold by the Pantages Theater and Ticketmaster, and the prices being charged in the resellers like StubHub and SeatGeek, the demand at the face value of the tickets is

Accepted Answer

The high prices being charged by ticket resellers like StubHub and SeatGeek indicate that the demand for 'Hamilton' tickets at face value is inelastic, as consumers are willing to pay much higher prices for sold-out tickets. If the demand were elastic, consumers would be less willing to pay these higher prices and would instead seek other alternatives.

Question 10

In 2016, Philadelphia imposed a tax of 1.5 cents per ounce on sweetened beverages, and PepsiCo indicated that its sales in Philadelphia fell by 40 percent after the tax took effect.If the price of PepsiCo's sweetened beverages in Philadelphia increased by 32 percent following the implementation of the tax, then based on these figures total revenue

Accepted Answer

The decrease in sales of PepsiCo's sweetened beverages by 40 percent implies a decrease in revenue. Furthermore, the increase in price by 32 percent would likely further decrease the demand for the products, leading to a larger decrease in revenue. Therefore, total revenue would have decreased.

Question 11

Suppose a decrease in the supply of paper results in an increase in revenue.This indicates that

Accepted Answer

When the supply decreases and revenue increases, it indicates that the price increase due to the supply decrease did not significantly reduce the quantity demanded, suggesting that demand is inelastic.

Question 12

Table 6-6
 
-Refer to Table 6-6.Based on the data in the table, between a price of $9.99 and $14.99, the demand for books is

Accepted Answer

The demand is elastic because the percentage change in quantity demanded is greater than the percentage change in price between $9.99 and $14.99.

Question 13

Suppose at the current price, the demand for copper is estimated at -3.14.What happens to sales revenue if the government imposes a price ceiling slightly below the free market equilibrium price in the copper market?

Accepted Answer

The answer of Suppose at the current price, the demand...

Question 14

When Nablom's Bakery raised the price of its breads by 10 percent, the quantity demanded fell by 15 percent.What was the effect on sales revenue?

Accepted Answer

When the price of breads was increased, the quantity demanded decreased by a greater percentage, 15%. This means that the increase in price did not compensate for the decrease in quantity demanded, resulting in a decrease in sales revenue.

Question 15

What is the relationship between price elasticity of demand and total revenue?

Accepted Answer

The answer of What is the relationship between price elasticity...

Question 16

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, demand for using the toll road must be

Accepted Answer

If tolls on a toll road can be raised significantly before commuters will consider using a free alternative, it indicates that the commuters have few, if any, close substitutes for the toll road. Therefore, they have no other options but to use the toll road even if the tolls are raising considerably. This behavior shows inelastic demand.

Question 17

If a firm's goal is to maximize revenue, it will price its product to correspond to the unit-elastic segment of its demand curve.

Accepted Answer

When demand is unit-elastic, a change in price leads to a proportional change in quantity demanded, maximizing total revenue.

Question 18

Assume that the market for barley is in equilibrium and the demand for barley is inelastic.Predict what happens to the revenue of barley farmers if a prolonged drought reduces the supply of barley.The drought will cause farm revenue to

Accepted Answer

When demand is inelastic, a decrease in supply leads to a higher price, and the percentage increase in price is greater than the percentage decrease in quantity sold, resulting in increased total revenue for farmers.

Question 19

If demand for a product is perfectly inelastic, a change in price will not change total revenue.

Accepted Answer

When demand is perfectly inelastic, quantity demanded does not change with price changes, so total revenue will change in proportion to the price change.

Question 20

Article Summary
Tickets for the Los Angeles production of the musical 'Hamilton' sold out quickly after going on sale in April. These tickets, sold through the box office at the Pantages Theater and through authorized seller Ticketmaster, were priced as low as $85 for mezzanine seats and $125 for orchestra seats. Once the tickets sold out, the only available seats for the musical which ran from August 11 through December 30, were through ticket resellers such as StubHub and SeatGeek, with tickets selling at an average price of $467 to $510. Ticket prices were the most expensive for August dates, with an average price of $624, and fell for dates in the following months, with December prices averaging $335. 
Source: Nicholas Cheng, "Don't have a ticket to 'Hamilton' yet? It's going to cost you," Los Angeles Times, August 19, 2017.
-Refer to the Article Summary.How would the Pantages Theater know if it was operating on the elastic portion of the demand curve for 'Hamilton' tickets?

Accepted Answer

If the Pantages Theater increased ticket prices and the total revenue from ticket sales decreased, it would indicate that they went beyond the optimal price point and were operating on the inelastic portion of the demand curve. If they decreased ticket prices and the total revenue from ticket sales did not change, it would also indicate that they were operating on the inelastic portion of the demand curve. Therefore, if the Pantages Theater wants to know if it is operating on the elastic portion of the demand curve, they would need to increase ticket prices and observe if the total revenue from ticket sales increased.

Quiz 6: Elasticity: the Responsiveness of Demand and Supply

Table 6-6 -Refer to Table 6-6.Based on the data in the table and using the midpoint formula, between a price of $9.99 and $14.99, the price elasticity of demand for books is