Question 1

Which of the following is a determinant of the price elasticity of demand for a product?
I.The existence of substitute goods
II.The percentage of a consumer's total budget devoted to purchases of that commodity

Accepted Answer

I. The existence of substitute goods is a determinant of price elasticity of demand because if there are close substitutes for a product, consumers can easily switch to the substitutes when the price of the product increases, making the demand for the product elastic.
II. The percentage of a consumer's total budget devoted to purchases of that commodity is also a determinant of price elasticity of demand because the higher the percentage of a consumer's budget that is devoted to a particular commodity, the more sensitive they will be to changes in price, making the demand for the product elastic.

Question 2

If the price of a good increases and the total revenue remains the same,the demand for the good is

Accepted Answer

When the price of a good increases and total revenue remains the same, it indicates that the percentage change in quantity demanded is equal to the percentage change in price, which is the definition of unit elastic demand.

Question 3

-Refer to the above figure.Demand will be inelastic when quantity is between

Accepted Answer

The answer of 
-Refer to the above figure.Demand will be...

Question 4

When demand is unit elastic,a change in price will cause

Accepted Answer

When demand is unit elastic, the percentage change in quantity demanded is equal to the percentage change in price. Therefore, the total revenue remains the same as the increase in price is offset by the decrease in quantity demanded, resulting in no change in total revenue.

Question 5

-Use the above figure.When the price increases from $2 to $10,total revenue

Accepted Answer

The answer of 
-Use the above figure.When the price increases...

Question 6

-Use the above figure.When the price increases from $2 to $10,the absolute price elasticity of demand is

Accepted Answer

The answer of 
-Use the above figure.When the price increases...

Question 7

Total revenue is

Accepted Answer

Total revenue is the amount of money a company receives from selling its products or services. It is calculated by multiplying the price of the products or services by the quantity sold. Therefore, option A is the correct answer.

Question 8

When the price of a pound of apples is $1.00,7500 pounds of apples are demanded.When the price of a pound of apples decreases to $0.80,10,000 pounds of apples are demanded.In this price range the demand for apples is

Accepted Answer

The change in price from $1.00 to $0.80 resulted in a change in quantity demanded from 7,500 pounds to 10,000 pounds, which is a relatively large change in quantity (33.33%). Additionally, the price decrease resulted in an increase in total revenue, indicating that the demand is elastic. Therefore, the demand for apples in this price range is elastic.

Question 9

If the government places a $0.50 tax on an item for which demand is perfectly elastic

Accepted Answer

When demand is perfectly elastic, consumers have many close substitutes and are very sensitive to any changes in price. Therefore, if the price of the item increases due to the tax, consumers will simply switch to the close substitutes, causing the demand for the original item to drop to zero. As a result, the entire burden of the tax will fall on the producer, who will have to lower the price to make the demand equal to the supply again. Thus, the producer will pay the entire tax.

Question 10

Which of the following is a determinant of the price elasticity of demand for an item?

Accepted Answer

All three factors listed (availability of a close substitute, percentage of budget allocated, and amount of time to adjust) are determinants of price elasticity of demand. The availability of a close substitute tends to increase the price elasticity of demand, as consumers can easily switch to a substitute if the price of the original item increases too much. The percentage of a consumer's budget allocated to the item also affects price elasticity - if the item makes up a large portion of a budget, consumers are more likely to be sensitive to price changes. Finally, the amount of time available to adjust to a price change can also affect the price elasticity of demand. If consumers have a short amount of time to adjust (e.g. if the price of gas suddenly increases), demand is likely to be less elastic.

Question 11

-Refer to the above figure.Demand will be unit-elastic when quantity is between

Accepted Answer

Demand is unit-elastic in the range where the total revenue (price times quantity) is maximized, which occurs between points A and B on the demand curve.

Question 12

All of the following are true regarding the relationship between price elasticity of demand and total revenues EXCEPT

Accepted Answer

This statement is not true. When market demand is inelastic, if the market price rises, then total revenues will increase, not decrease. When the price rises, the decrease in quantity demanded is proportionally smaller than the increase in price, leading to an increase in total revenue.

Question 13

Explain why an increase in price can raise total revenues if the price elasticity of demand is inelastic.

Accepted Answer

The answer of Explain why an increase in price can...

Question 14

When the price of gasoline is $2.20 per gallon,11 million gallons are demanded,and when the price of gasoline goes up to $2.60 per gallon,10 million gallons are demanded.The gasoline in this range has a(n)

Accepted Answer

The answer of When the price of gasoline is $2.20...

Question 15

-Refer to the above figure.Demand will be elastic when quantity is between

Accepted Answer

The answer of 
-Refer to the above figure.Demand will be...

Question 16

An elastic response in the quantity of a good demanded would be caused by

Accepted Answer

When there are many substitutes available for a good, consumers have more options to switch to if the price of one particular good increases. This leads to a more elastic demand, meaning that the quantity of the good demanded will be more sensitive to changes in price.

Question 17

"Higher prices always yield higher revenues." Do you agree or disagree? Why?

Accepted Answer

The answer of "Higher prices always yield higher revenues." Do...

Question 18

For a linear demand curve,where is the amount of total expenditures on a good maximized?

Accepted Answer

The answer of For a linear demand curve,where is the...

Question 19

When demand is elastic,

Accepted Answer

When demand is elastic, a change in price will result in a proportionally larger change in quantity demanded, causing total revenue to move in the opposite direction. For example, if a company increases the price of its product and demand is elastic, then the increase in price will cause a decrease in quantity demanded that is proportionally larger, leading to a decrease in total revenue. Similarly, if the company decreases the price of its product, then the increase in quantity demanded will be proportionally larger, leading to an increase in total revenue. Therefore, changes in price and changes in total revenue move in opposite directions when demand is elastic.

Question 20

Which of the following is FALSE regarding inelastic demand?

Accepted Answer

Inelastic demand means that the price elasticity of demand is less than 1, not greater than 1.

Quiz 6: Demand and Supply Elasticity

Which of the following is a determinant of the price elasticity of demand for a product? I.The existence of substitute goods II.The percentage of a consumer's total budget devoted to purchases of that commodity