Question 1

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...

Question 2

-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...

Question 3

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

Accepted Answer

All of the factors mentioned (availability of substitutes, budget allocation, and time to adjust) can affect the price elasticity of demand for a product. When there are close substitutes available, consumers are more likely to switch to those substitutes if the price of the original product increases. When a product constitutes a large percentage of a consumer's budget, they are more likely to be highly sensitive to changes in price. Finally, when consumers have more time to adjust to a price change, they may be more likely to seek out alternatives or adjust their consumption patterns, making the demand for the product more elastic.

Question 4

Total revenue is

Accepted Answer

Total revenue is the amount of money a company generates from selling its goods or services. It is calculated by multiplying the price of the commodity by the quantity sold. Thus, the correct formula for total revenue is Price × Quantity (A). The remaining options are not the correct methods for calculating total revenue.

Question 5

When demand is unit elastic, an increase 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, resulting in a constant total revenue. Therefore, an increase in price will not cause any change in total revenue.

Question 6

-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 7

"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 8

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

Accepted Answer

When the price of oranges decreases from $1.00 to $0.80, the percentage change in price is -20% (decrease) and the percentage change in quantity demanded is +33.33% (increase). We can use the formula for price elasticity of demand:

% change in quantity demanded / % change in price

= 33.33% / -20%

= -1.67

Since the price elasticity of demand is greater than 1, we know that demand is elastic in this price range. A small change in price results in a relatively larger change in quantity demanded.

Question 9

When the price of coffee is $2.2 per cup, 11 million cups are demanded, and when the price of coffee goes up to $2.6 per cup, 10 billion cups are demanded. The coffee in this range has a(n)

Accepted Answer

The demand for coffee is inelastic in this scenario because the percentage change in quantity demanded is less than the percentage change in price, indicating that consumers' demand for coffee does not significantly decrease with an increase in price.

Question 10

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

Both the existence of substitute goods (I) and the percentage of a consumer's total budget devoted to purchases of that commodity (II) are determinants of the price elasticity of demand for a product. When there are more substitutes available for a product, the demand becomes more elastic (responsive to changes in price). Similarly, if the product makes up a larger portion of a consumer's budget, the demand becomes more elastic as they may look for cheaper alternatives when the price increases. Therefore, both I and II affect the price elasticity of demand.

Question 11

One of the most important determinants of a good's price elasticity of demand is

Accepted Answer

The ease with which consumers can substitute other goods for that product is a primary determinant of price elasticity of demand. If consumers can easily find substitutes for the good, they will be more sensitive to price changes and the demand will be more elastic. This means that small changes in price will lead to large changes in quantity demanded. On the other hand, if there are few substitutes available, consumers will be less sensitive to price changes and the demand will be more inelastic.

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 actually false. When demand is inelastic, a rise in price will lead to an increase in total revenues, not a decrease. Therefore, choice D is not true regarding the relationship between price elasticity of demand and total revenues.

Question 13

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 14

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

Accepted Answer

Since demand is perfectly elastic, the consumers' willingness to pay is exactly equal to the pre-tax price. If the producer raises the price due to the tax, consumers will find a substitute elsewhere. Therefore, producers cannot pass the tax onto consumers and will end up paying the entire amount of the tax.

Question 15

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

Accepted Answer

Demand is elastic when the percentage change in quantity demanded is greater than the percentage change in price. This occurs when the demand curve is relatively flat, which is the case between points 0 and A.

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 choose from and can easily switch to another good if the price of one good increases, causing an elastic response in quantity demanded. This is because the demand for the product is sensitive to changes in price.

Question 17

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

Accepted Answer

Demand is inelastic when the percentage change in quantity demanded is less than the percentage change in price. This typically occurs at higher quantities and lower prices, which is likely between points B and C on the demand curve.

Question 18

When demand is elastic

Accepted Answer

When demand is elastic, a change in price leads to a larger change in quantity demanded. As a result, when the price is decreased, the total revenue increases because the quantity demanded increases by a greater percentage and vice versa. Therefore, changes in price and changes in total revenue move in opposite directions.

Question 19

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

Accepted Answer