Question 1

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

The absolute value of price elasticity of demand is always greater than or equal to zero. For an inelastic demand, the percentage change in quantity demanded is less than the percentage change in price, resulting in a price elasticity of demand less than one (but greater than or equal to zero). Therefore, the correct answer is C, less than one.

Question 2

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 results in the total amount of money generated from sales, which is known as revenue.

Question 3

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 a unit elastic demand has a price elasticity equal to −1, meaning that a change in price results in an equal percentage change in quantity demanded.

Question 4

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

Total revenue is the amount that a firm receives from the sale of goods and services. Total profit is the revenue minus the cost of production, so it is not the correct choice. Total surplus and total benefit are not commonly used terms in the context of revenue.

Question 5

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

Price elasticity of demand measures how responsive consumers are to changes in price. If the demand for a product is elastic, a price increase will cause total revenue to fall. Conversely, if the demand is inelastic, a price increase can lead to a rise in revenue. Knowledge of price elasticity is important for businesses because it helps them make informed decisions about pricing strategies and revenue volume.

Question 6

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 absolute value of the percentage change in quantity demanded is equal to the absolute value of the percentage change in price.

Question 7

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 8

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

The answer of A horizontal demand curve indicates that:
A)quantity demanded...

Question 9

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

An absolute value of 1.2 indicates elastic demand, meaning that the percentage change in quantity demanded will be greater than the percentage change in price.

Question 10

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 the quantity demanded does not change at all in response to changes in price. This results in a demand curve that is perfectly vertical, where the quantity demanded is the same regardless of the price.

Question 11

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 indicates that demand for the good is inelastic, meaning that a change in price will not significantly affect the quantity demanded of the good.

Question 12

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 hormone for treating Type I diabetes, and without it, individuals could face severe health consequences, including death. Therefore, individuals will continue to demand insulin at almost any price. However, at extremely high prices, individuals may not be able to afford insulin, which could result in lower demand.

Question 13

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

Elasticity of demand is classified as elastic when the absolute value of the price elasticity of demand is greater than 1. This implies that a small change in price results in a relatively larger change in quantity demanded.

Question 14

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, resulting in an elasticity of 1. Since the question states that the elasticity is reported as an absolute value, the answer is D.

Question 15

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

A more elastic demand curve means that a small change in price will result in a large change in quantity demanded. This type of curve is flatter, as the percentage change in quantity is greater than the percentage change in price.

Question 16

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 even a small change in price will result in a large change in the quantity demanded.

Question 17

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 its goods or services, before any expenses are deducted.

Question 18

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

A price elasticity of demand of 0.4 indicates an inelastic demand, meaning the percentage change in quantity demanded will be less than the percentage change in price.

Question 19

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 means that the quantity demanded is unchanged regardless of the price. This occurs when there are no substitutes available for the product or when consumers have no choice but to buy the product, such as with life-saving medications. It is not related to consumer sensitivity to price changes or the speed at which they alter their demand.

Question 20

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 the percentage change in quantity demanded will equal the percentage change in price. This means that if the price goes up by 10%, the quantity demanded will decrease by 10%. If the price goes down by 5%, the quantity demanded will increase by 5%.

Quiz 4: Elasticity

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

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

A good with a unit elastic demand has a:

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

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

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

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 demand of 1.2 indicates an _ demand, meaning the percentage change in quantity demanded will be _ than the percentage change in price.

When demand is perfectly inelastic:

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:

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, the measured elasticity for an elastic demand would be:

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

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

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:

Total revenue is the amount a firm:

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.

Perfectly inelastic demand occurs when:

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