Question 1

If the price of ice cream changes by 30 percent and the quantitydemanded changes by 75 percent, what is the absolute value ofdemand elasticity?
A)2.5, so demand is inelastic
B)0.4, so demand is inelastic
C)0.4, so demand is elastic
D)2.5, so demand is elastic

Accepted Answer

The absolute value of demand elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is |75% / 30%| = 2.5, indicating that demand is elastic since the elasticity is greater than 1.

Question 2

If an increase in the price of oil by 10 percent would cause thequantity demanded for oil to fall by 5 percent, the elasticity ofdemand for oil in absolute terms is:
A)10.
B)5.
C)2.
D)0.5.

Accepted Answer

The elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is |-5%/10%| = 0.5.

Question 3

The elasticity of demand for a good is -0.75. A 4 percentincrease in price will cause a:
A)3 percent decrease in quantity demanded.(True Answer )Correct
B)5.33 percent increase in quantity demanded.
C)5.33 percent decrease in quantity demanded.
D)0.19 percent decrease in quantity demanded.

Accepted Answer

The elasticity of demand is -0.75 which means that for a 1% increase in price, quantity demanded will decrease by 0.75%. Therefore, a 4% increase in price will lead to a 3% decrease in quantity demanded (0.75 x 4). The correct answer is A.

Question 4

At a price $4 for Good X, a firm is willing to supply 1,400 unitsof X. For a price of $5 for Good X, the firm is willing to supply 1,500 units X. The change in revenue for the firm when theprice of the good rises from $4 to $5 is a:
A)$100 increase in total revenue.
B)$1,500 increase in total revenue.
C)$7,500 increase in total revenue.
D)There is not enough information to answer the question.

Accepted Answer

The answer of At a price $4 for Good X,...

Question 5

If the price of Good X rises from $4 to $5, and the quantitydemanded of Good X falls from 200 units to 180 units, the priceelasticity of demand is:
A)2.1.
B)0.47.
C)1.4.
D)0.4.

Accepted Answer

Using the formula for price elasticity of demand:
% change in quantity demanded / % change in price

We can calculate the percent change in quantity demanded:
((180-200)/200) x 100% = -10%

And the percent change in price:
((5-4)/4) x 100% = 25%

Plugging in these values:
-10% / 25% = -0.4

However, since we are only interested in the absolute value of elasticity, we take the absolute value of -0.4:

| -0.4 | = 0.4

Therefore, the price elasticity of demand is 0.4, which corresponds to answer choice B.

Question 6

Total revenue is:
A)price X quantity.
B)quantity/price.
C)the elasticity of demand X price.
D)price + quantity.

Accepted Answer

Total revenue is the total amount of money a company receives from selling its products or services. This is calculated by multiplying the price of the product or service by the quantity that is sold. Therefore, the correct choice is A, price multiplied by quantity.

Question 7

Marge tutors English students-if she raises rates, her revenuesincrease. Brad tutors biology students-if he lowers rates, hisrevenues increase. Which of the following is TRUE?
A)Marge's demand is elastic, and Brad's demand is inelastic.
B)Marge's demand is inelastic, and Brad's demand is elastic.
C)Marge's demand is elastic, and Brad's demand is elastic.
D)Marge's demand is inelastic, and Brad's demand is inelastic.

Accepted Answer

Marge's demand is likely to be inelastic because English tutoring is often seen as a necessary service and students are willing to pay a higher price for a good-quality tutor. On the other hand, Brad's demand is likely to be elastic because there may be a larger pool of potential biology tutors for students to choose from, so Brad may need to lower his rates to remain competitive and attract more customers. Therefore, a decrease in Brad's rates will lead to an increase in demand and revenue, making his demand elastic.

Question 8

What happens to revenues when the demand curve is unitelastic and the price changes?
A)Revenues increase when the price increases.
B)Revenues remain unchanged.
C)Revenues decrease when the price increases.
D)The change in revenues cannot be estimated.

Accepted Answer

When the demand curve is unitelastic, a change in price leads to an equal change in quantity demanded, resulting in no change in total revenue. Therefore, revenues remain unchanged.

Question 9

If the demand curve is inelastic a price ________ causes a(n)________ in revenues.
A)decrease; decrease
B)decrease; increase
C)increase; decrease
D)There is not enough information to answer.

Accepted Answer

When the demand curve is inelastic, a decrease in price causes a proportionally smaller decrease in quantity demanded, which leads to a decrease in total revenue. This is because the increase in price is not significant enough to offset the decrease in quantity demanded, resulting in lower overall revenue.

Question 10

If the demand for a good is elastic, then firms producing thegood should ________ price in order to increase revenue.
A)increase
B)decrease
C)hold constant
D)either increase or decrease

Accepted Answer

If demand for a good is elastic, then a decrease in price should result in a larger increase in quantity demanded, thereby increasing total revenue for the firm. Conversely, an increase in price would result in a larger decrease in quantity demanded and a decrease in total revenue. Therefore, firms producing the good should decrease price in order to increase revenue.

Question 11

The price of cigars is $10, with a quantity demanded of 1,000per day. If the price increases to $12, the quantity demandeddeclines to 800 per day. What is the absolute value of elasticityof demand?
A)1.00
B)0.82
C)1.22
D)12.2

Accepted Answer

The absolute value of elasticity of demand is calculated using the formula: |Ed| = [(Q2 - Q1) / (Q2 + Q1)] / [(P2 - P1) / (P2 + P1)], where Q1 and Q2 are the initial and final quantities demanded, and P1 and P2 are the initial and final prices. Plugging in the given values: |Ed| = [(800 - 1000) / (800 + 1000)] / [(12 - 10) / (12 + 10)] = [-200 / 1800] / [2 / 22] = -0.1111 / 0.0909 = 1.22.

Question 12

If the price of Good Y falls from $10 to $8, and the quantitydemand of Good Y rises from 1,000 units to 1,200 units, theprice elasticity of demand is:
A)1.00.
B)0.20.
C)0.81.
D)1.22.

Accepted Answer

Price elasticity of demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price. Therefore, we have:

- PED = ((Q2-Q1)/((Q2+Q1)/2))/((P2-P1)/((P2+P1)/2))
- PED = ((1200-1000)/((1200+1000)/2))/((8-10)/((8+10)/2))
- PED = (200/1100)/(-2/9)
- PED = (2/11)/(-2/9)
- PED = -0.81

Since PED is negative, we take the absolute value to get a positive elasticity of demand. Therefore, the answer is 0.81.

Question 13

If the price elasticity of demand for Good X is 1 in absolutevalue, which of the following is TRUE?
I. When the price of the good changes, the total revenue for theproduct does not change
II.A percentage drop in price will lead to an equal percentageincrease in quantity demanded
III. When the price of the product rises, total revenue alsoincreases.
A)I only
B)I and II only
C)II and III only
D)II only

Accepted Answer

When the price elasticity of demand for a good is 1 in absolute value, it means that the percentage change in quantity demanded is equal to the percentage change in price, which makes statements I and II true. Statement III is incorrect because when the price elasticity of demand is 1, an increase in price does not change total revenue; it remains the same.

Question 14

If the demand curve is inelastic then an increase in price wouldcause:
A)an increase in total revenue.
B)a decrease in total revenue.
C)an increase or decrease in total revenue.
D)no change in total revenue.

Accepted Answer

When demand is inelastic, it means that the quantity demanded does not decrease significantly as the price increases. Therefore, an increase in price leads to an increase in total revenue because the decrease in quantity demanded is not enough to offset the higher price.

Question 15

If the price elasticity of demand is 2 in absolute value, thenwhen the price of Good X rises by 25 percent:
A)the quantity demanded of Good X rises by 50 percent.
B)the quantity demanded of Good X falls by 50 percent.(True Answer )Correct
C)the quantity demanded of Good X rises by 12.5 percent.
D)the quantity demanded of Good X falls by 12.5 percent.

Accepted Answer

The absolute value of the price elasticity of demand (|PED|) indicates the degree of responsiveness of the quantity demanded to a change in price. When |PED| is greater than 1, it means that the percentage change in quantity demanded is greater than the percentage change in price. In this case, |PED| = 2, so when the price of Good X rises by 25 percent, the quantity demanded will fall by 50 percent (i.e. 25% x 2 = 50%). Therefore, the best choice is B.

Question 16

If the demand curve is elastic a price ________ causes a(n)________ in revenues.
A)decrease; decrease
B)increase; increase
C)decrease; increase
D)There is not enough information to answer.

Accepted Answer

When the demand curve is elastic, a decrease in price leads to a proportionally larger increase in quantity demanded, which increases total revenue.

Question 17

In general, the flatter the demand curve the:
A)less the demand elasticity.
B)greater the demand elasticity.
C)greater the change in price needed to induce a change in quantity demanded.
D)less the change in total revenue given a price change.

Accepted Answer

A flatter demand curve indicates a greater responsiveness to changes in price, meaning a higher demand elasticity. This means that even small changes in price will lead to larger changes in quantity demanded.

Question 18

A)$120; inelastic
B)$480; elastic
C)$360; inelastic
D)$120; elastic

Accepted Answer

The answer of 
A)$120; inelastic
B)$480; elastic
C)$360; inelastic
D)$120; elastic
...

Question 19

The demand curve is inelastic if the absolute value of theelasticity is:
A)greater than 1.
B)greater than 0.
C)less than 1.
D)equal to 1.

Accepted Answer

The demand curve is inelastic if the absolute value of the elasticity is less than 1. This means that a change in price will result in a proportionately smaller change in quantity demanded. In other words, a price increase will not significantly decrease demand, and a price decrease will not significantly increase demand.

Question 20

When the demand curve for a good is unit elastic, raising theprice of the good by 25 percent will raise the revenue of thefirm by:
A)125 percent.
B)100 percent.
C)25 percent.
D)There is not enough information to answer the question.

Accepted Answer

When the demand curve for a good is unit elastic, the percentage change in the quantity demanded is equal to the percentage change in price. Therefore, if the price of the good is raised by 25%, the quantity demanded will fall by 25%, resulting in no change in total revenue. Thus, the revenue of the firm will remain the same and will not increase.

Quiz 5: Elasticity

If the price of ice cream changes by 30 percent and the quantitydemanded changes by 75 percent, what is the absolute value ofdemand elasticity?

If an increase in the price of oil by 10 percent would cause thequantity demanded for oil to fall by 5 percent, the elasticity ofdemand for oil in absolute terms is:

The elasticity of demand for a good is -0.75. A 4 percentincrease in price will cause a:

At a price $4 for Good X, a firm is willing to supply 1,400 unitsof X. For a price of $5 for Good X, the firm is willing to supply 1,500 units X. The change in revenue for the firm when theprice of the good rises from $4 to $5 is a:

If the price of Good X rises from $4 to $5, and the quantitydemanded of Good X falls from 200 units to 180 units, the priceelasticity of demand is:

Total revenue is:

Marge tutors English students-if she raises rates, her revenuesincrease. Brad tutors biology students-if he lowers rates, hisrevenues increase. Which of the following is TRUE?

What happens to revenues when the demand curve is unitelastic and the price changes?

If the demand curve is inelastic a price causes a(n) in revenues.

If the demand for a good is elastic, then firms producing thegood should ________ price in order to increase revenue.

The price of cigars is $10, with a quantity demanded of 1,000per day. If the price increases to $12, the quantity demandeddeclines to 800 per day. What is the absolute value of elasticityof demand?

If the price of Good Y falls from $10 to $8, and the quantitydemand of Good Y rises from 1,000 units to 1,200 units, theprice elasticity of demand is:

If the demand curve is inelastic then an increase in price wouldcause:

If the price elasticity of demand is 2 in absolute value, thenwhen the price of Good X rises by 25 percent:

If the demand curve is elastic a price causes a(n) in revenues.

In general, the flatter the demand curve the:

The demand curve is inelastic if the absolute value of theelasticity is:

When the demand curve for a good is unit elastic, raising theprice of the good by 25 percent will raise the revenue of thefirm by: