Question 1

What is the effect on total revenue if demand is inelastic and price rises?
A) Total revenue will fall.
B) Total revenue will rise.
C) Total revenue may rise or fall depending on the size of the price increase.
D) Elasticity is not relevant, since total revenue always rises if price increases.

Accepted Answer

When demand is inelastic, it means that the quantity demanded does not decrease significantly as the price increases. Therefore, if the price rises, total revenue (price multiplied by quantity sold) will increase because the decrease in quantity demanded is not enough to offset the increase in price.

Question 2

Suppose that the price of a product increased from $1.90 to $2.10, and the quantity demanded decreased from 24 to 16. What is the value of the price elasticity of demand?
A) 0.5.
B) 0.58.
C) 1.0.
D) 1.73.
E) 4.0.

Accepted Answer

E

Question 3

Suppose that the price of a product decreased from $6.50 to $5.50, and the quantity demanded increased from 55 to 65. What is the value of the price elasticity of demand?
A) 0.5.
B) 0.85.
C) 1.0.
D) 1.18.
E) 2.0.

Accepted Answer

C

Question 4

What is the term for the responsiveness of quantity demanded to a change in price?
A) Elastic demand.
B) The elasticity coefficient.
C) Unitary elasticity.
D) Price elasticity of demand.

Accepted Answer

The term for the responsiveness of quantity demanded to a change in price is price elasticity of demand. Option A refers to a specific type of elasticity where a small change in price results in a large change in quantity demanded. Option B refers to the numerical value that measures the extent of the responsiveness. Option C refers to a situation where the percentage change in quantity demanded is equal to the percentage change in price, indicating a constant elasticity of demand.

Question 5

What is the term for the total amount of income a firm receives from its sales?
A) Total profit.
B) Total revenue.
C) Revenue coefficient.
D) Total demand.
E) Sales maximizing.

Accepted Answer

The term for the total amount of income a firm receives from its sales is total revenue.

Question 6

What is the formula used to calculate the price elasticity of demand?
A) Change in price divided by change in quantity demanded.
B) Change in quantity demanded divided by change in price.
C) Percentage change in price divided by percentage change in quantity demanded.
D) Percentage change in quantity demanded divided by percentage change in price

Accepted Answer

The formula for calculating the price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. This measures how much the quantity demanded of a good responds to a change in the price of that good.

Question 7

What is price elasticity of demand?
A) The responsiveness of price to a change in the quantity demanded.
B) The responsiveness of quantity demanded to a change in price.
C) Price divided by quantity demanded.
D) Price multiplied by quantity demanded.

Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It helps to determine how much the quantity demanded will change in response to a change in price.

Question 8

What will happen to the quantity demanded if the price elasticity of demand is 2 and price increases by 10%?
A) It increases by 10%.
B) It decreases by 5%.
C) It decreases by 20%.
D) It increases by 20%.

Accepted Answer

If the price elasticity of demand is 2, then a 10% increase in price would lead to a 20% decrease in quantity demanded (since elasticity = percent change in quantity demanded / percent change in price). Therefore, the correct answer is C, "It decreases by 20%."

Question 9

Under which of the following situations will total revenue fall?
A) If elasticity is > 1 and price falls.
B) If elasticity is > 1 and price rises.
C) If elasticity is < 1 and price rises.
D) If elasticity is = 1 and price falls.

Accepted Answer

If elasticity is greater than 1, a price increase will lead to a larger percentage decrease in quantity demanded. As a result, total revenue will decrease.

Question 10

What is total revenue?
A) It is the profits from doing business.
B) It is the total value of sales less cost.
C) It is elasticity multiplied by quantity sold.
D) It is price multiplied by quantity sold.

Accepted Answer

Total revenue is the amount of money a company brings in through sales of goods and services. It is calculated by multiplying the price of a product or service by the quantity sold. Therefore, the correct answer is D, as it is the formula for calculating total revenue.

Question 11

What measures the responsiveness of quantity demanded to a change in price?
A) Total revenue.
B) Equilibrium price.
C) Price elasticity of demand.
D) Income elasticity.
E) Inelasticity.

Accepted Answer

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It calculates the percentage change in quantity demanded divided by the percentage change in price. If the result is greater than 1, demand is considered elastic, meaning a small change in price results in a large change in quantity demanded. If the result is less than 1, demand is considered inelastic, meaning a change in price has little effect on quantity demanded.

Question 12

What is unitary elasticity?
A) An elasticity coefficient which is negative.
B) An elasticity coefficient which is equal to zero.
C) An elasticity coefficient which is equal to one.
D) A percentage change in quantity which is exactly equal to the percentage change in demand.
E) Where elasticity and inelasticity are balanced.

Accepted Answer

Unitary elasticity refers to a situation where the percentage change in quantity demanded is exactly equal to the percentage change in price. In other words, the elasticity coefficient is equal to one. This means that the demand is neither perfectly elastic (where a small change in price leads to an infinite change in demand) nor perfectly inelastic (where a change in price has no effect on demand). Instead, demand and elasticity are balanced, resulting in a proportional change in both price and quantity.

Question 13

All of the following statements except one are correct concerning a product which has an elastic demand. Which is the exception?
A) Any relative change in price is greater than the relative change in quantity.
B) Buyers are relatively sensitive to price changes.
C) The elasticity coefficient is greater than one.
D) Total revenue rises if price decreases.

Accepted Answer

For a product with elastic demand, the relative change in quantity demanded is greater than the relative change in price, meaning consumers are very responsive to price changes. This is opposite to what option A states.

Question 14

What term is used to describe quantities demanded that do not change much in response to a change in price?
A) Inelastic demand.
B) Elastic demand.
C) Unitary elasticity.
D) Price elasticity of demand.
E) The elasticity coefficient.

Accepted Answer

Inelastic demand is used to describe quantities demanded that do not change much in response to a change in price. This means that even if the price of a good or service goes up or down, the quantity demanded will remain relatively stable. This type of demand typically occurs for goods or services that are deemed essential or necessary, such as food, medicine, and other basic needs.

Question 15

The Dean of Arts recently announced a 20% increase in tuition and explained that the increase was needed to raise the university's revenue. Which of the following might the Dean be assuming about the elasticity of demand for education at her school?
A) It is elastic.
B) It is inelastic.
C) It is perfectly elastic.
D) It could be either elastic or perfectly elastic.

Accepted Answer

The Dean's announcement suggests that the demand for education at her school is relatively inelastic because she believes that the increase in tuition will not significantly impact enrollment numbers. If the demand were perfectly elastic, even a small increase in tuition would cause a significant drop in enrollment, so the Dean would not be able to rely on tuition increases to raise revenue. It is unlikely that the demand is perfectly inelastic, as even the most dedicated students may be dissuaded by a large increase in tuition costs. Therefore, option B is the best choice.

Question 16

What does the term elastic demand mean?
A) Quantities demanded which are not very responsive to a change in price.
B) The responsiveness of quantity demanded to a change in price.
C) An elasticity coefficient which is equal to one.
D) Quantities demanded which are quite responsive to a change in price.
E) The responsiveness of price to a change in quantity demanded.

Accepted Answer

Elastic demand refers to a situation where the quantity demanded is quite responsive to a change in price, meaning that a small change in price results in a larger change in the quantity demanded.

Question 17

What has happened to price if the price elasticity of demand is 2 and quantity demanded increases by 10%?
A) It increases by 10%.
B) It decreases by 5%.
C) It decreases by 20%.
D) It increases by 20%.

Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. If elasticity is 2 and quantity demanded increases by 10%, then the price must decrease by 5% to make the ratio equal 2 (10% / 5% = 2).

Question 18

Suppose that the price of a product increased from $18 to $22, and the quantity demanded decreased from 63 to 57. What is the value of the price elasticity of demand?
A) 0.43.
B) 0.5.
C) 1.5.
D) 2.0.
E) 2.3.

Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% Change in Quantity Demanded) / (% Change in Price). Here, the % change in quantity demanded is (57 - 63) / 63 = -0.095 (or -9.5%), and the % change in price is (22 - 18) / 18 = 0.222 (or 22.2%). Therefore, PED = -0.095 / 0.222 ≈ -0.43 (in absolute value, since elasticity is often considered as a positive number, the correct answer is 0.43).

Question 19

What does the elasticity coefficient refer to?
A) It is price multiplied by the quantity of the product sold.
B) It indicates the responsiveness of quantity demanded to a change in price.
C) It is the responsiveness of price to a change in quantity demanded.
D) It is quantity demanded at any given price.

Accepted Answer

The elasticity coefficient (also known as price elasticity of demand) refers to the responsiveness of quantity demanded to a change in price. This coefficient can be calculated as the percentage change in quantity demanded divided by the percentage change in price.

Question 20

When is the percentage change in quantity exactly equal to the percentage change in price?
A) When there is unitary elasticity.
B) When demand is inelastic.
C) When demand is elastic.
D) When demand does not change.

Accepted Answer

Unitary elasticity occurs when the percentage change in quantity demanded is exactly equal to the percentage change in price. This means that demand is neither perfectly elastic nor perfectly inelastic. The price change results in a proportional change in quantity demanded.

Quiz 4: Elasticity

What is the effect on total revenue if demand is inelastic and price rises?

Suppose that the price of a product increased from $1.90 to $2.10, and the quantity demanded decreased from 24 to 16. What is the value of the price elasticity of demand?

Suppose that the price of a product decreased from $6.50 to $5.50, and the quantity demanded increased from 55 to 65. What is the value of the price elasticity of demand?

What is the term for the responsiveness of quantity demanded to a change in price?

What is the term for the total amount of income a firm receives from its sales?

What is the formula used to calculate the price elasticity of demand?

What is price elasticity of demand?

What will happen to the quantity demanded if the price elasticity of demand is 2 and price increases by 10%?

Under which of the following situations will total revenue fall?

What is total revenue?

What measures the responsiveness of quantity demanded to a change in price?

What is unitary elasticity?

All of the following statements except one are correct concerning a product which has an elastic demand. Which is the exception?

What term is used to describe quantities demanded that do not change much in response to a change in price?

The Dean of Arts recently announced a 20% increase in tuition and explained that the increase was needed to raise the university's revenue. Which of the following might the Dean be assuming about the elasticity of demand for education at her school?

What does the term elastic demand mean?

What has happened to price if the price elasticity of demand is 2 and quantity demanded increases by 10%?

Suppose that the price of a product increased from $18 to $22, and the quantity demanded decreased from 63 to 57. What is the value of the price elasticity of demand?

What does the elasticity coefficient refer to?

When is the percentage change in quantity exactly equal to the percentage change in price?