Question 1

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 answer of Assume that you own a small boutique...

Question 2

In May 2011,the average price of gasoline in the United States was $3.76 per gallon,and consumers purchased nearly 5 percent less gasoline than they had during May 2010,when the average price of gasoline was $2.79 per gallon.Based on these figures,when the price of gasoline rose from $2.79 per gallon to $3.76 per gallon,total revenue

Accepted Answer

The price increase from $2.79 to $3.76 is significant, and even though the quantity purchased decreased by 5%, the higher price likely led to an increase in total revenue.

Question 3

Which of the following explains why a firm would be interested in the knowing the price elasticity of demand for a good it sells?

Accepted Answer

The price elasticity of demand measures how responsive consumers are to a change in the price of a good. Knowing this information allows a firm to predict how changes in price will affect the quantity of the good sold and, ultimately, the firm's total revenue. Thus, choice D is the best answer as the others do not directly relate to the impact of price on demand.

Question 4

Table 6-3
 
-Refer to Table 6-3.Katie Graham owns a kayak rental service in Santa Barbara.Table 6.3 below shows her estimated demand schedule for kayak rentals per week.She would like to increase her sales revenue by changing the price she charges for rentals.At present she charges $75.Based on the information in the table,Katie

Accepted Answer

The answer of Table 6-3
 
-Refer to Table 6-3.Katie Graham...

Question 5

In 2001,the prices of VHS movie tapes were practically identical while DVD prices for different movie titles varied considerably.What explanation can be given for this?

Accepted Answer

Movie studios had determined their pricing strategies for VHS tapes since the technology had been around for a while, but they were unsure of the price elasticities of DVDs, which were a relatively new technology at the time, and thus had variable prices.

Question 6

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 is greater than 1, it means that demand is relatively elastic. This means that as prices increase, the quantity demanded will decrease by a greater proportion. Therefore, increasing ticket prices will not necessarily increase total revenue from ticket sales, and could actually decrease it.

Question 7

Along a downward sloping,linear demand curve,total revenue is the greatest

Accepted Answer

The answer of Along a downward sloping,linear demand curve,total revenue...

Question 8

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, a 10 percent increase in price will result in a 10 percent decrease in the quantity demanded. Therefore, total revenue will remain the same (not increase).

Question 9

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 below the free market equilibrium price in the copper market?

Accepted Answer

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

Question 10

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

The answer of Assume that the market for barley is...

Question 11

Opera Estate Girls' School is considering increasing its tuition to raise revenue.If the school believes that raising tuition will increase revenue

Accepted Answer

If the school believes that raising tuition will increase revenue, it is assuming that the demand for attending the school is inelastic. This means that the change in price (tuition) will not significantly affect the quantity of students who enroll in the school. In other words, the demand for the school is relatively unresponsive to changes in tuition. If the demand for attending the school were elastic, raising tuition would likely lead to a decrease in the number of students enrolling, resulting in a decrease in revenue.

Question 12

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

Accepted Answer

The answer of Suppose a decrease in the supply of...

Question 13

Figure 6-3 
-Refer to Figure 6-3.Between points a and b on the demand curve,demand is

Accepted Answer

The answer of Figure 6-3 
-Refer to Figure 6-3.Between points...

Question 14

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

Accepted Answer

The answer of If demand for a product is perfectly...

Question 15

Ali's Gyros operates near a college campus.Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut.He estimates that he would be able to sell 200 gyros per day at $3.50 each.
a.Calculate the price elasticity of demand using the midpoint formula.
b.Calculate the change in revenue as a result of the price cut.

Accepted Answer

The answer of Ali's Gyros operates near a college campus.Ali...

Question 16

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 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 sales, ultimately decreasing revenue. Therefore, increasing the price is not always the only way to increase revenue from selling a product. Other strategies like improving product quality, increasing marketing efforts, and expanding distribution channels could also lead to an increase in revenue.

Question 17

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 do not have many substitute options and are willing to pay the higher price to continue using the toll road. This behavior suggests that demand for using the toll road is inelastic. Inelastic demand means that the change in price has a relatively small impact on the quantity demanded.

Question 18

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 commuters are willing to pay significantly higher tolls before switching to a free alternative, then an increase in tolls will likely result in an increase in total revenue. The demand for the toll road appears to be relatively inelastic, meaning that changes in price (the toll) have a limited effect on the quantity of usage. Therefore, an increase in tolls is likely to result in a proportional increase in revenue.

Question 19

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 20

Suppose 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 bread is raised by 10 percent, the quantity demanded falls by 15 percent. This means that the increase in price is causing a decrease in revenue due to the decrease in quantity demanded. Therefore, sales revenue will decrease.

Quiz 6: Elasticity: the Responsiveness of Demand and Supply