Question 1

Total revenue is the amount a firm:
A) receives from the sale of goods and services.
B) keeps after all expenses are paid.
C) reinvests in itself from sales.
D) receives from dividends.

Accepted Answer

Total revenue is the total amount a firm receives from the sale of goods and services, before any expenses are subtracted. It includes all income generated by the company's activities, including sales, interest on investments, and other sources.

Question 2

The price elasticity of demand for insulin (a hormone necessary to treat Type I diabetes) is:
A) likely to be perfectly inelastic over some range of prices.
B) perfectly elastic.
C) always perfectly inelastic.
D) low relative to the price elasticity of supply.

Accepted Answer

The demand for insulin is likely to be perfectly inelastic over some range of prices because it is a necessary and life-saving medication for those with Type I diabetes. People with Type I diabetes need insulin to survive, and the demand for it is not impacted by price changes within a certain range. However, the price elasticity of demand for insulin may not always be perfectly inelastic as people may resort to alternative treatments if the price becomes too high.

Question 3

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 0.4 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.
A) elastic; greater
B) inelastic; greater
C) elastic; less
D) inelastic; less

Accepted Answer

Inelastic; less. A price elasticity of demand less than 1 (in absolute value) indicates inelastic demand, meaning the percentage change in quantity demanded is less than the percentage change in price.

Question 4

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand less than one indicates that demand for the good is:
A) elastic.
B) inelastic.
C) unitary elastic.
D) unrelated to price.

Accepted Answer

A price elasticity of demand less than one means that demand for the good is inelastic, which means that changes in price have a relatively small impact on the quantity demanded.

Question 5

If a good has unitary price elasticity of demand, then the absolute value of the percentage change in _____ equals _____.
A) quantity demanded; one
B) price; one
C) quantity demanded; the absolute value of the corresponding percentage change in price
D) price; the absolute value of the percentage change in quantity demanded, plus one

Accepted Answer

Unitary price elasticity of demand means that the percentage change in quantity demanded is equal to the percentage change in price, hence option C is correct.

Question 6

Perfectly inelastic demand occurs when:
A) consumers are extremely sensitive to a change in price.
B) consumers are quick to alter their demand when the price changes.
C) the quantity demanded is unchanged when the price changes by any amount.
D) only large changes in price affect the quantity demanded.

Accepted Answer

Perfectly inelastic demand occurs when the quantity demanded remains unchanged regardless of any change in the price. In other words, consumers are not responsive to price changes and will continue to purchase the same quantity regardless of the price.

Question 7

A good with a unit elastic demand has a:
A) perfectly horizontal demand curve.
B) perfectly vertical demand curve.
C) price elasticity greater than 1.
D) price elasticity equal to −1.

Accepted Answer

A good with unit elastic demand has a price elasticity of demand equal to -1, which means that a change in price will result in an equal percentage change in quantity demanded, resulting in no change in total revenue.

Question 8

A vertical demand curve indicates that:
A) the quantity demanded will drop to zero if the price increases by any amount.
B) the quantity demanded will remain unchanged no matter what happens to the price.
C) the quantity demanded will rise if the price increases by any amount.
D) the quantity demanded will only react to large changes in price.

Accepted Answer

A vertical demand curve represents a situation where the quantity demanded is completely inelastic, meaning it does not change regardless of price changes. This is because the good or service is considered essential or has no close substitutes.

Question 9

A horizontal demand curve indicates that:
A) quantity demanded will rise if the price increases by any amount.
B) quantity demanded will drop to zero if the price increases by any amount.
C) quantity demanded will remain unchanged no matter what happens to the price.
D) price is not important in this market.

Accepted Answer

A horizontal demand curve indicates perfectly elastic demand, meaning that any increase in price will cause the quantity demanded to drop to zero.

Question 10

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of one indicates that:
A) the percentage change in quantity demanded will equal the percentage change in price.
B) the percentage change in quantity demanded will equal one.
C) both the percentage change in price and quantity demanded must equal one.
D) the percentage change in quantity demanded and the percentage change in price must sum to one.

Accepted Answer

A price elasticity of one indicates that a change in price will have an equal and opposite percentage change in quantity demanded. Therefore, the percentage change in quantity demanded will equal the percentage change in price.

Question 11

Assuming price elasticity of demand is reported as an absolute value, a good with unit elastic demand has an elasticity:
A) between zero and one.
B) greater than one.
C) less than one, but greater than zero.
D) equal to one.

Accepted Answer

Unit elastic demand means that the percentage change in quantity demanded is equal to the percentage change in price. This is only possible when the elasticity of demand is equal to one. Absolute values are used to show the magnitude of elasticity, so the answer is D.

Question 12

When demand is perfectly inelastic:
A) the demand curve is perfectly vertical.
B) the demand curve is perfectly horizontal.
C) the measured elasticity is exactly −1.
D) the response to a change in price is immediate.

Accepted Answer

When demand is perfectly inelastic, it means that quantity demanded does not change in response to a change in price. This is represented graphically by a completely vertical demand curve, as shown in the extreme left of the elasticity spectrum. Therefore, choice A is correct as it represents the perfectly inelastic demand curve.

Question 13

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand greater than one indicates that demand for the good is:
A) elastic.
B) inelastic.
C) unitary elastic.
D) perfectly inelastic.

Accepted Answer

A price elasticity of demand greater than one indicates that demand for the good is elastic, meaning that a price increase will cause a relatively larger decrease in quantity demanded. This is because consumers are very responsive to changes in price and can easily switch to substitute goods.

Question 14

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an elastic demand would be:
A) greater than one.
B) less than one.
C) exactly one.
D) greater than zero and less than one.

Accepted Answer

The absolute value of the price elasticity of demand measures the degree of responsiveness of quantity demanded to a change in price. An elastic demand is one in which the percentage change in quantity demanded is greater than the percentage change in price, which means that the absolute value of the price elasticity of demand is greater than 1. Therefore, the answer is A) greater than one.

Question 15

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _____ demand, meaning the percentage change in quantity demanded will be _____ than the percentage change in price.
A) elastic; greater
B) inelastic; greater
C) elastic; less
D) inelastic; less

Accepted Answer

A price elasticity of demand of 1.2 indicates an elastic demand, meaning the percentage change in quantity demanded will be greater than the percentage change in price.

Question 16

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an inelastic demand would be:
A) greater than zero.
B) greater than one.
C) less than one.
D) exactly one.

Accepted Answer

Price elasticity of demand measures the responsiveness of the quantity demanded to a change in price. If the demand is inelastic, it means that the quantity demanded changes proportionally less than the change in price. Therefore, the absolute value of elasticity would be less than one.

Question 17

In general, the more elastic a demand curve is, the:
A) flatter it will be.
B) steeper it will be.
C) more bowed-in it will be.
D) faster it will shift when price changes.

Accepted Answer

The more elastic a demand curve is, the more responsive consumers are to changes in price. This means that even a slight increase in price will result in a larger decrease in quantity demanded. Therefore, the demand curve will be flatter.

Question 18

Knowing the price elasticity of demand is important in business because it allows a manager to determine whether:
A) a price increase will cause total revenue to rise or fall.
B) an increase in supply will cause total profit to rise or fall.
C) a price increase will cause the quantity demanded to rise or fall.
D) a price increase will cause the demand to rise or fall.

Accepted Answer

Knowing the price elasticity of demand helps managers to determine how much of a change in quantity demanded will result from a change in price. If demand is elastic (responsive to changes in price), then a price increase will cause total revenue to fall, since the decrease in quantity demanded will more than offset the increase in price. On the other hand, if demand is inelastic (unresponsive to changes in price), then a price increase will cause total revenue to rise, since the increase in price will more than offset the decrease in quantity demanded. Therefore, understanding price elasticity of demand is crucial in making pricing decisions that maximize revenue.

Question 19

Multiplying the quantity sold by the price paid for each unit will give us:
A) total profit.
B) total revenue.
C) total cost.
D) total benefit.

Accepted Answer

Multiplying the quantity sold by the price paid for each unit will give us the total revenue earned, not profit, cost, or benefit.

Question 20

The amount that a firm receives from the sale of goods and services is:
A) total profit.
B) total revenue.
C) total surplus.
D) total benefit.

Accepted Answer

The amount that a firm receives from the sale of goods and services is called total revenue. Total profit is the amount left after subtracting total cost from total revenue. Total surplus is the difference between the total benefit received by all parties involved in a market transaction and the total cost of the transaction. Total benefit is the overall gain or benefit received from a good or service, which could include non-financial factors like convenience or enjoyment. Therefore, the correct answer is B - total revenue.

Quiz 4: Elasticity

Total revenue is the amount a firm:

The price elasticity of demand for insulin (a hormone necessary to treat Type I diabetes) is:

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 0.4 indicates an _ demand, meaning the percentage change in quantity demanded will be _ than the percentage change in price.

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand less than one indicates that demand for the good is:

If a good has unitary price elasticity of demand, then the absolute value of the percentage change in _ equals _.

Perfectly inelastic demand occurs when:

A good with a unit elastic demand has a:

A vertical demand curve indicates that:

A horizontal demand curve indicates that:

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of one indicates that:

Assuming price elasticity of demand is reported as an absolute value, a good with unit elastic demand has an elasticity:

When demand is perfectly inelastic:

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand greater than one indicates that demand for the good is:

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an elastic demand would be:

Assuming price elasticity of demand is reported as an absolute value, a price elasticity of demand of 1.2 indicates an _ demand, meaning the percentage change in quantity demanded will be _ than the percentage change in price.

Assuming price elasticity of demand is reported as an absolute value, the measured elasticity for an inelastic demand would be:

In general, the more elastic a demand curve is, the:

Knowing the price elasticity of demand is important in business because it allows a manager to determine whether:

Multiplying the quantity sold by the price paid for each unit will give us:

The amount that a firm receives from the sale of goods and services is: