Question 1

If income elasticity of demand for a good is negative, the good is a(n)__________ good.
A)normal
B)positive
C)complementary
D)substitute
E)inferior

Accepted Answer

A negative income elasticity of demand indicates that as income increases, the quantity demanded of the good decreases. Inferior goods are those that people consume less of as their income increases, so an inferior good would have a negative income elasticity of demand.

Question 2

Total revenue is defined as
A)price minus quantity sold.
B)price multiplied by quantity sold.
C)price divided by quantity sold.
D)quantity divided by price sold.
E)price plus quantity sold.

Accepted Answer

Total revenue is equal to the total amount of money a company receives from sales. It is calculated by multiplying the price of a good or service by the quantity sold. Therefore, the correct choice is B, price multiplied by quantity sold.

Question 3

Which of the following is not a determinant of price elasticity of demand for good Z?
A)the number of substitutes for good Z
B)the percentage of one's budget spent on good Z
C)the amount of time that has passed since the price of good Z has changed
D)the number of resources needed to produce good Z.

Accepted Answer

The number of resources needed to produce good Z is not a determinant of price elasticity of demand. The determinants of price elasticity of demand include the availability of substitutes, the percentage of one's budget spent on the good, and the amount of time that has passed since the price change.

Question 4

If demand for a product is perfectly inelastic, a tax of $1 per unit imposed on sellers will
A)not affect the market price of the product.
B)cause the market price to rise by $1 per unit.
C)cause the market price to decline by $1 per unit.
D)cause the market price to rise by less than $1 per unit.

Accepted Answer

When demand is perfectly inelastic, consumers will pay any price for the product. Therefore, a $1 tax on sellers will be fully passed on to consumers, raising the market price by $1 per unit.

Question 5

If price elasticity of demand is 0.5, it follows that a _______ percent decrease in price would cause a _______ percent increase in quantity demanded.
A)50; 1
B)0.5; 1
C)0.5; 0.5
D)100; 500
E)2; 1

Accepted Answer

The price elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. If elasticity is 0.5, a 2% decrease in price leads to a 1% increase in quantity demanded (0.5 = 1%/2%).

Question 6

Exhibit 19-3  Refer to Exhibit 19-3. When price decreases from $1.50 to $0.50, the price elasticity of supply is
A)0.
B)1.0.
C)5.0.
D)0.1.
E)0.5.

Accepted Answer

The answer of Exhibit 19-3  Refer to Exhibit 19-3....

Question 7

When the cross elasticity of demand between two goods is __________, the goods are __________.
A)negative; substitutes for one another
B)negative; complements for one another
C)positive; normal goods
D)positive; inferior goods

Accepted Answer

When the cross elasticity of demand between two goods is negative, it means that if the price of one good increases, the demand for the other good decreases, indicating that the two goods are complements for one another.

Question 8

If a small increase in the price of a good reduces quantity demanded to zero, demand is ________________ and the price elasticity of demand is equal to _______________.
A)perfectly inelastic; zero
B)perfectly elastic; infinity
C)unit elastic; one
D)perfectly elastic; zero

Accepted Answer

If a small increase in price reduces quantity demanded to zero, it means that consumers are extremely sensitive to changes in price and will switch to a substitute good immediately. This is a characteristic of perfectly elastic demand, where the price elasticity of demand is infinite.

Question 9

When price = $16, quantity demanded = 200. When price = $14, quantity demanded = 225. When the firm lowered price from $16 to $14, it discovered that demand is __________ and total revenue __________ by ____________,
A)elastic; increased; $3,200
B)elastic; decreased; $3,150
C)inelastic; increased; $50
D)inelastic; decreased; $50
E)inelastic; decreased; $3,150

Accepted Answer

The answer of When price = $16, quantity demanded =...

Question 10

When price = $33, quantity demanded = 460. When price = $31, quantity demanded = 500. The price elasticity of demand is _______________, making this an _____________ good in the price range between $31 and $33.
A)1.33; inelastic
B)1.33; elastic
C)0.75; elastic
D)0.75; inelastic
E)6.2; elastic

Accepted Answer

The formula for price elasticity of demand (PED) is:

PED = (percent change in quantity demanded) / (percent change in price)

Using the values given in the problem:

Percent change in quantity demanded = ((500-460)/((500+460)/2)) x 100% = 8.7%
Percent change in price = ((33-31)/((33+31)/2)) x 100% = 6.25%

PED = 8.7%/6.25% = 1.392

Since the PED is greater than 1, the good is considered to be elastic, meaning that a small change in price leads to a larger change in quantity demanded. Therefore, the best answer is B: 1.33; elastic.

Question 11

Airlines that try to lower fares in order to increase revenue must believe that the demand for airline service is
A)price inelastic.
B)income elastic.
C)income inelastic.
D)price elastic.
E)cross-price elastic.

Accepted Answer

If airlines are trying to reduce fares to increase revenue, they are assuming that consumers are sensitive to price changes and will be more likely to purchase flights at lower prices. This suggests that the demand for airline service is price elastic, meaning that changes in price have a relatively large effect on the quantity of air travel demanded.

Question 12

Exhibit 19-3  Refer to Exhibit 19-3. When price decreases from $5.50 to $4.50, the price elasticity of supply is
A)0.
B)0.1.
C)0.5.
D)1.0.
E)5.0.

Accepted Answer

The answer of Exhibit 19-3  Refer to Exhibit 19-3....

Question 13

When quantity demanded of a good increases, total revenue
A)increases.
B)decreases.
C)increases, if demand is elastic.
D)increases, if demand is inelastic.

Accepted Answer

The answer of When quantity demanded of a good increases,...

Question 14

If a 5 percent reduction in the price of a commodity results in a 3 percent increase in the quantity demanded, demand is said to be
A)perfectly elastic.
B)elastic.
C)unit elastic.
D)inelastic.
E)perfectly inelastic.

Accepted Answer

Demand is considered inelastic when the percentage change in quantity demanded is less than the percentage change in price, indicating that consumers are not very responsive to price changes in this scenario.

Question 15

If the demand for a product is perfectly elastic, a tax of $1 per unit imposed on sellers will
A)increase the market price by $1 per unit.
B)increase the market price by less than $1 per unit.
C)decrease the market price by $1 per unit.
D)decrease the market price by less than $1 per unit.
E)not affect the market price.

Accepted Answer

If the demand for a product is perfectly elastic, it means that the consumers are very sensitive to any changes in the price of the product. Therefore, if a tax of $1 per unit is imposed on the sellers, they will not be able to pass on this tax to the consumers in the form of a higher price because any increase in price will result in a significant decrease in demand. Consequently, the market price will remain the same and the burden of the tax will fall entirely on the sellers.

Question 16

Exhibit 19-3  Refer to Exhibit 19-3. When price decreases from $3.50 to $2.50, the price elasticity of supply is
A)0.
B)1.0.
C)5.0.
D)0.1.
E)0.5.

Accepted Answer

The answer of Exhibit 19-3  Refer to Exhibit 19-3....

Question 17

The producer of good X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for good X is 0.75. Your best advice to the producer would be to
A)increase the price of good X to raise total revenue.
B)decrease the price of good X to raise total revenue.
C)leave the price of good X unchanged since it will not influence total revenue.
D)increase the price of good X to reduce total revenue.

Accepted Answer

Since the price elasticity of demand for good X is less than 1 (inelastic), increasing the price will raise total revenue because the percentage decrease in quantity demanded will be less than the percentage increase in price.

Question 18

The price elasticity of demand indicates
A)buyers'  responsiveness to price changes.
B)the slope of the demand curve.
C)how far demand stretches over time.
D)the extent to which a demand curve shifts as incomes change.

Accepted Answer

Price elasticity of demand measures how sensitive consumers are to changes in price, so it directly indicates buyers' responsiveness to price changes. The other options are not related to price elasticity of demand.

Question 19

Cross elasticity of demand measures the responsiveness of the
A)demand for one good to changes in the demand for another good.
B)demand for one good to changes in the price of another good.
C)quantity demanded of one good to changes in the quantity demanded of another good.
D)quantity demanded of one good to changes in the price of another good.

Accepted Answer

Cross elasticity of demand measures how the quantity demanded of one good responds to changes in the price of another good, indicating whether the goods are substitutes or complements.

Question 20

If a 7 percent increase in the price of a commodity results in a 12 percent increase in the quantity supplied, supply is said to be
A)perfectly elastic.
B)elastic.
C)unit elastic.
D)inelastic.
E)perfectly inelastic.

Accepted Answer

If a small increase in price leads to a relatively large increase in the quantity supplied, supply is considered elastic. In this case, a 7 percent increase in price resulted in a 12 percent increase in quantity supplied, indicating that supply is elastic.

Quiz 6: Elasticity

If income elasticity of demand for a good is negative, the good is a(n) __________ good.

Total revenue is defined as

Which of the following is not a determinant of price elasticity of demand for good Z?

If demand for a product is perfectly inelastic, a tax of $1 per unit imposed on sellers will

If price elasticity of demand is 0.5, it follows that a _ percent decrease in price would cause a _ percent increase in quantity demanded.

Exhibit 19-3 Refer to Exhibit 19-3. When price decreases from $1.50 to $0.50, the price elasticity of supply is

When the cross elasticity of demand between two goods is , the goods are .

If a small increase in the price of a good reduces quantity demanded to zero, demand is __ and the price elasticity of demand is equal to _.

When price = $16, quantity demanded = 200. When price = $14, quantity demanded = 225. When the firm lowered price from $16 to $14, it discovered that demand is and total revenue by ____,

When price = $33, quantity demanded = 460. When price = $31, quantity demanded = 500. The price elasticity of demand is ___, making this an _ good in the price range between $31 and $33.

Airlines that try to lower fares in order to increase revenue must believe that the demand for airline service is

Exhibit 19-3 Refer to Exhibit 19-3. When price decreases from $5.50 to $4.50, the price elasticity of supply is

When quantity demanded of a good increases, total revenue

If a 5 percent reduction in the price of a commodity results in a 3 percent increase in the quantity demanded, demand is said to be

If the demand for a product is perfectly elastic, a tax of $1 per unit imposed on sellers will

Exhibit 19-3 Refer to Exhibit 19-3. When price decreases from $3.50 to $2.50, the price elasticity of supply is

The producer of good X is contemplating a price change and has asked for your advice. After some empirical investigation, you conclude that the price elasticity of demand for good X is 0.75. Your best advice to the producer would be to

The price elasticity of demand indicates

Cross elasticity of demand measures the responsiveness of the

If a 7 percent increase in the price of a commodity results in a 12 percent increase in the quantity supplied, supply is said to be