Question 1

Which of the following factors will make the demand for a product relatively elastic?
A) There are few substitutes.
B) The time interval considered is long.
C) The good is considered a necessity.
D) Purchases of the good require a small portion of consumers' budgets.

Accepted Answer

A longer time interval allows consumers more time to find substitutes or adjust their behavior, making demand more elastic.

Question 2

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to price?
A) increase price by 12.5 percent
B) reduce price by 12.5 percent
C) increase price by 8 percent
D) reduce price by 8 percent

Accepted Answer

The answer of You are the only seller of eggs...

Question 3

When the price of movie tickets in a certain town was reduced, the movietheaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price- elasticity coefficient of
A) 1.0.
B) greater than 1.
C) 0.5.
D) zero.

Accepted Answer

The demand for movie tickets has a price-elasticity coefficient of 1.0, indicating unitary elasticity, where a change in price does not affect total revenue.

Question 4

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively. A 2-percent increase in price will result in an increase in total revenues in which of the following cases? A) D₁and D₃ B) D₁and D₄ C) ^D₂^and^D₄ D) D₁, D₂, and D₃

Accepted Answer

A price-elasticity coefficient less than 1 indicates inelastic demand, meaning total revenue increases when price increases. D2 (0.5) and D4 (0.18) are inelastic.

Question 5

Which of the following is not characteristic of a product with relatively inelastic demand?
A) The good is regarded by consumers as a necessity.
B) There are a large number of good substitutes for the good.
C) Buyers spend a small percentage of their total income on the product.
D) Consumers have had only a short time period to adjust to changes in price.

Accepted Answer

A product with relatively inelastic demand is one where changes in price have little effect on the quantity demanded by consumers. This is typically the case when the good is regarded as a necessity by consumers, when buyers spend a small percentage of their total income on the product, and when consumers have had only a short time period to adjust to changes in price. However, if there are a large number of good substitutes for the product, then consumers can easily switch to another product if the price of the original product increases, indicating a more elastic demand.

Question 6

The price elasticity of demand increases with the length of the period considered because
A) consumers' incomes will increase over time.
B) the demand curve will shift outward as time passes.
C) all prices will increase over time.
D) consumers will be better able to find substitutes.

Accepted Answer

Over time, consumers are likely to have more options available to substitute for a product if its price increases. This makes them more responsive to changes in price, resulting in a higher price elasticity of demand. The other choices (A, B, and C) are not necessarily true and do not directly explain why the price elasticity of demand would increase with time.

Question 7

Assume that pizza and hamburgers are the only food items available to consumers. If the price of pizza increases, other factors constant, then which of the following will definitely happen?
A) Total revenues received by pizza sellers will increase.
B) Total revenues received by pizza sellers will decrease.
C) Total revenues received by hamburger sellers will increase.
D) Total revenues received by hamburger sellers will decrease.

Accepted Answer

If the price of pizza increases, consumers may buy more hamburgers as a substitute, leading to an increase in total revenues for hamburger sellers.

Question 8

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from good A to
A) increase and total revenues from good B to decrease
B) increase and total revenues from good B to increase.
C) decrease and total revenues from good B to increase.
D) decrease and total revenues from good B to decrease.

Accepted Answer

Good A has many close substitutes, so a price increase is likely to cause consumers to switch to those substitutes, reducing demand for good A and decreasing its total revenue. Good B makes up a significant portion of most families' budgets, so a price increase for it is likely to reduce demand for it, leading to a decrease in total revenue for good B as well. Therefore, total revenues from both goods would decrease if prices were increased. Therefore, the best choice is D.

Question 9

What is the most likely effect of the development of rental movies and online movie streaming on the movie theater (or cinema) industry?
A) decreased costs of producing movies
B) increased demand for movie theater tickets
C) movie theater tickets become an inferior good
D) increased price elasticity of demand for movie theater tickets

Accepted Answer

The development of rental movies and online streaming increases the availability of substitutes for movie theaters, making the demand for theater tickets more price elastic.

Question 10

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?
A) "The different brands are almost identical. I always buy the cheapest."
B) "I use so little of that product that when I do buy it, I don't pay much attention to the price."
C) "The brand I buy is so superior to other available brands that I hardly consider the others."
D) "I pinch pennies in buying other products, but like most people, I feel I owe it to myself to get the best brand of this product."

Accepted Answer

When consumers consider different brands to be almost identical, they are likely to be highly price-sensitive and price is likely to be the key factor in their purchasing decision. Therefore, demand for a particular brand in such a market would be very elastic.

Question 11

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. From these facts, we would expect that the demand for Good A would be _, while that of Good B would be .
A) elastic; elastic also
B) inelastic; inelastic also
C) elastic; inelastic
D) inelastic; elastic

Accepted Answer

The demand for Good A is elastic because it has many close substitutes, making consumers more sensitive to price changes. The demand for Good B is also elastic because it constitutes a significant portion of families' budgets, leading to greater sensitivity to price changes.

Question 12

(p. $$pageTag$$)  Refer to the above graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively
A) inelastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A).
B) elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A).
C) elastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G).
D) inelastic because the loss in total revenue (area A) is greater than the gain in total revenue (areas E + F + G).

Accepted Answer

When price increases from P3 to P4, demand is relatively elastic because the loss in total revenue (areas E + F + G) is greater than the gain in total revenue (area A). This means that the increase in revenue from selling at a higher price is more than offset by the decrease in revenue from selling fewer units due to the higher price.

Question 13

Answer the question based on the following table, which shows a demand schedule.  The largest decline in total revenue will occur when price falls from
A) $5 to $4.
B) $4 to $3.
C) $3 to $2.
D) $2 to $1.

Accepted Answer

The answer of Answer the question based on the following...

Question 14

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that
A) Cheerios are a luxury.
B) Cereals are a necessity.
C) there are more substitutes for Cheerios than for cereals as a whole.
D) consumption of cereals as a whole is greater than consumption of Cheerios.

Accepted Answer

The more substitutes available for a product, the more price-elastic its demand tends to be. Since there are more substitutes for Cheerios (such as other brands of cereal or other breakfast foods), its demand is more price-elastic compared to cereals as a whole.

Question 15

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should
A) increase the price of the software.
B) decrease the price of the software.
C) hold the price of the software constant.
D) increase the supply of the software.

Accepted Answer

Since the price elasticity of demand for the software is less than 1, that means that an increase in price will result in a smaller decrease in demand than the increase in price. Therefore, increasing the price of the software will result in an increase in total revenues.

Question 16

Answer the question based on the following table, which shows a demand schedule.  Total revenues will decrease if price rises from
A) $1 to $2.
B) $2 to $3.
C) $3 to $4.
D) $4 to $5.

Accepted Answer

The answer of Answer the question based on the following...

Question 17

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy
A) fewer bottles of orange juice, and their total spending on orange juice will decrease.
B) fewer bottles of orange juice, but their total spending on orange juice will increase.
C) more bottles of orange juice, and their total spending on orange juice will increase.
D) more bottles of orange juice, but their total spending on orange juice will decrease.

Accepted Answer

When the price elasticity of demand is less than 1 (inelastic), a decrease in price leads to a proportionally smaller increase in quantity demanded, causing total revenue (or spending) to decrease.

Question 18

Which product is most likely to be the most price elastic?
A) milk
B) housing
C) clothing
D) automobiles

Accepted Answer

The answer of Which product is most likely to be...

Question 19

If 100 shirts are sold when the unit price is $10, while 75 shirts are sold when the unit price is $15, one can conclude that in this price range,
A) demand for the shirts is elastic.
B) demand for the shirts is inelastic.
C) demand for the shirts has shifted to the right.
D) consumers are quite sensitive to changes in the price of the shirt.

Accepted Answer

The answer of If 100 shirts are sold when the...

Question 20

Chuck has a price elasticity of demand for beer of 1.2. Suppose that the price of beer is increased by 10 percent. What will happen to the total amount Chuck spends on beer?
A) It will not change.
B) It will decrease.
C) It will increase.
D) It is impossible to tell.

Accepted Answer

Since Chuck's price elasticity of demand for beer is greater than 1 (elastic), a 10% increase in price will lead to a more than 10% decrease in quantity demanded, thus reducing the total amount spent on beer.

Quiz 6: Elasticity

Which of the following factors will make the demand for a product relatively elastic?

You are the only seller of eggs in town, and the price-elasticity coefficient for eggs is known to be 0.8. If you want to increase your sales quantity by 10 percent through a price change, what should you do to price?

When the price of movie tickets in a certain town was reduced, the movietheaters' revenues did not change. This suggests that the demand for movie tickets in that town has a price- elasticity coefficient of

The price-elasticity coefficients are 2.6, 0.5, 1.4, and 0.18 for four different demand schedules,D1, D2, D3, and D4, respectively. A 2-percent increase in price will result in an increase in total revenues in which of the following cases?

Which of the following is not characteristic of a product with relatively inelastic demand?

The price elasticity of demand increases with the length of the period considered because

Assume that pizza and hamburgers are the only food items available to consumers. If the price of pizza increases, other factors constant, then which of the following will definitely happen?

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. A price increase for each good would most likely cause total revenues from good A to

What is the most likely effect of the development of rental movies and online movie streaming on the movie theater (or cinema) industry?

In some markets consumers may buy many different brands of a product. Which of the statements below best represents a situation where demand for a particular brand would be very elastic?

A firm produces and sells two goods, A and B. Good A is known to have many close substitutes; good B makes up a significant portion of most families' budgets. From these facts, we would expect that the demand for Good A would be _, while that of Good B would be .

(p. $pageTag$ ) Refer to the above graph. Consider a situation where price increases from P3 to P4. In this price range, demand is relatively

Answer the question based on the following table, which shows a demand schedule. The largest decline in total revenue will occur when price falls from

The demand for Cheerios cereal is more price-elastic than the demand for cereals as a whole. This is best explained by the fact that

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. In order to increase total revenues from that product, you should

Answer the question based on the following table, which shows a demand schedule. Total revenues will decrease if price rises from

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy

Which product is most likely to be the most price elastic?

If 100 shirts are sold when the unit price is $10, while 75 shirts are sold when the unit price is $15, one can conclude that in this price range,

Chuck has a price elasticity of demand for beer of 1.2. Suppose that the price of beer is increased by 10 percent. What will happen to the total amount Chuck spends on beer?