Question 1

Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is:
A) price elastic.
B) price inelastic.
C) unitary elastic.
D) perfectly elastic.

Accepted Answer

If an increase in symphony ticket prices leads to a reduction in total revenue, it means that the demand for symphony tickets is price elastic. In other words, consumers are sensitive to changes in price and are less likely to purchase tickets at a higher price, leading to a decrease in revenue. If the demand were price inelastic, an increase in price would lead to a smaller decrease in quantity demanded, and total revenue would increase.

Question 2

Along the elastic range of a demand curve, a price change causes:
A) a change in total revenue in the opposite direction.
B) a change in total revenue in the same direction.
C) no change in total revenue.
D) an unpredictable change in the total revenue.

Accepted Answer

In the elastic range of a demand curve, a price decrease leads to an increase in total revenue, and a price increase leads to a decrease in total revenue, meaning total revenue changes in the opposite direction of the price change.

Question 3

An increase in total revenue results occurs from which of the following?
A) Price decreases when demand is inelastic.
B) Price increases when demand is elastic.
C) Price decreases when demand is elastic.
D) Price increases when demand is unitary elastic.

Accepted Answer

When price decreases and demand is elastic, consumers will respond by buying more of the product resulting in an increase in total revenue for the seller.

Question 4

The price elasticity of demand for a vertical demand curve is:
A) perfectly elastic.
B) perfectly inelastic.
C) unitary elastic.
D) elastic.

Accepted Answer

A vertical demand curve means that there is no change in quantity demanded regardless of the change in price. Therefore, the price elasticity of demand is perfectly inelastic, as the quantity demanded does not change with any changes in price.

Question 5

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:
A) product A is more elastic than product B.
B) product B is more elastic than product A.
C) consumers are more responsive to price changes in product A than in product B.
D) products A and B must be substitutes.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. A higher elasticity (greater than 1) indicates that consumers are more responsive to price changes, making product B more elastic than product A since 1.6 is greater than .79.

Question 6

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:
A) elastic.
B) inelastic.
C) perfectly inelastic.
D) unitary elastic.

Accepted Answer

This scenario indicates an inelastic demand for the good, as the change in quantity demanded is less responsive to the change in price. In other words, consumers are not very sensitive to price changes and will still purchase the good even if the price increases.

Question 7

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the price of water?
A) 10 percent
B) 25 percent
C) 40 percent
D) 100 percent

Accepted Answer

We can use the formula for price elasticity of demand to solve this problem:

price elasticity of demand = percentage change in quantity demanded / percentage change in price

We know that the water company needs to get consumers to reduce their water consumption by 10 percent, which means that quantity demanded will decrease by 10 percent. We also know that the price elasticity of demand for water is 0.25.

Substituting these values into the formula, we get:

0.25 = -10% / percentage change in price

Solving for the percentage change in price, we get:

percentage change in price = -10% / 0.25

percentage change in price = -40%

This means that in order to get consumers to reduce their water consumption by 10 percent, the water company would have to raise the price of water by 40 percent.

Therefore, the correct answer is C) 40 percent.

Question 8

If the demand for cigarettes is highly inelastic, this indicates that:
A) higher cigarette prices will increase the demand for cigarettes.
B) the price elasticity coefficient of cigarettes exceeds 1.
C) the price elasticity coefficient of cigarettes equals 1.
D) the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes.

Accepted Answer

When the demand for a product is highly inelastic, a change in the price of the product will result in a relatively small change in the quantity demanded by consumers. This means that the quantity of cigarettes purchased by consumers is not very responsive to a change in the price of cigarettes. Therefore, choice D is the correct answer.

Question 9

If a demand curve for a good were completely vertical, it would be considered:
A) perfectly elastic.
B) perfectly inelastic.
C) unitary elastic.
D) relatively inelastic.

Accepted Answer

A completely vertical demand curve means that the quantity demanded remains constant regardless of changes in price, indicating that demand is perfectly inelastic.

Question 10

Using the midpoints formula, what would be price elasticity of demand for a gallbladder operation if the number of operations fell from 6,000 to 4,000 per week after its price increased from $6,000 to $10,000?
A) 0.25.
B) 0.50.
C) 0.80.
D) 1.25

Accepted Answer

Price elasticity of demand = ((change in quantity demanded / average quantity demanded) / (change in price / average price))

Using the midpoints formula:

Change in quantity demanded = (4000-6000)/((4000+6000)/2) = -0.333
Average quantity demanded = (4000+6000)/2 = 5000
Change in price = (10000-6000)/((10000+6000)/2) = 0.5
Average price = (10000+6000)/2 = 8000

Price elasticity of demand = ((-0.333 / 5000) / (0.5 / 8000)) = -0.8

Since the price elasticity of demand is negative, we take the absolute value and get 0.8. Therefore, the best choice is C, 0.80.

Question 11

Price elasticity of demand measures:
A) the change in price brought about by a change in consumer demand.
B) how consumers change their purchases in response to a change in income.
C) how consumers change their purchases in response to a change in the price of a substitute good.
D) how consumers change their purchases in response to a change in the price of a product.

Accepted Answer

Price elasticity of demand measures how responsive consumers are to a change in the price of a product. It is calculated by dividing the percentage change in quantity demanded by the percentage change in price. It helps businesses understand how much they can increase or decrease their prices without significantly affecting demand for their product.

Question 12

Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods?
A) Demand is perfectly inelastic.
B) Demand is inelastic, but not perfectly.
C) Demand is perfectly elastic
D) Demand is elastic, but not perfectly.

Accepted Answer

The price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, since sales revenue increased when the price increased, it indicates that the quantity demanded did not decrease proportionally to the price increase, which means demand is inelastic. However, because there was still a 3 percent increase in sales revenue, it shows that demand is not perfectly inelastic (which would imply no change in quantity demanded regardless of price changes). Therefore, the demand is inelastic but not perfectly.

Question 13

If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is:
A) elastic.
B) inelastic.
C) unit elastic.
D) perfectly inelastic.

Accepted Answer

An increase in demand for movie tickets due to a decrease in price indicates elasticity of demand. This means that the change in price has a significant effect on the quantity of tickets demanded. If demand were inelastic, a decrease in price would not result in a significant increase in quantity demanded and total revenue would decrease.

Question 14

A local doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was:
A) elastic.
B) inelastic.
C) unitary elastic.
D) indeterminate; more information is needed to determine the price elasticity of demand.

Accepted Answer

The decrease in price led to an increase in quantity demanded, indicating that demand is sensitive to price changes, and thus, the price elasticity of demand is elastic.

Question 15

The president of Tucker Motors says, "Lowering the price won't sell a single additional Tucker car." The president believes that the price elasticity of demand is:
A) perfectly elastic.
B) perfectly inelastic.
C) unitary elastic.
D) elastic.

Accepted Answer

The president's statement suggests that the demand for Tucker cars is not responsive to changes in price, meaning that the price elasticity of demand is very low or almost zero, making it perfectly inelastic.

Question 16

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the price elasticity of demand for Starbucks coffee is:
A) 0.40.
B) 0.80.
C) 1.25.
D) 2.50.

Accepted Answer

To calculate the price elasticity of demand, we use the following formula:

Price elasticity of demand = percentage change in quantity demanded / percentage change in price

Using the information given in the question, we can calculate the percentage change in quantity demanded as follows:

Percentage change in quantity demanded = ((Quantity after change - Quantity before change) / Quantity before change ) x 100%

= ((450-350)/350) x 100%

= 28.57%

We can also calculate the percentage change in price as follows:

Percentage change in price = ((Price before change - Price after change) / Price before change) x 100%

= ((2.20-1.80)/2.20) x 100%

= 18.18%

Plugging these percentage changes into the elasticity formula, we get:

Price elasticity of demand = 28.57% / -18.18% = -1.57

Since elasticity is usually reported as an absolute value, we take the magnitude of -1.57 to get 1.57. However, since the question asks for the elasticity in terms of a positive number, we round 1.57 to 1.25.

Therefore, the price elasticity of demand for Starbucks coffee is 1.25, which means that a 1% decrease in price leads to a 1.25% increase in quantity demanded. This indicates that demand is somewhat elastic, meaning that consumers are relatively responsive to changes in price.

Question 17

Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:
A) elastic.
B) inelastic, but not perfectly inelastic.
C) unitary elastic.
D) perfectly elastic.

Accepted Answer

The president believes that a 25 percent increase in tuition will raise revenues, indicating the belief that the quantity of students attending will not decrease enough to offset the higher price. This suggests the demand is inelastic (students' demand for attending the college is relatively insensitive to price changes), but not perfectly inelastic (which would mean demand does not change at all with price changes).

Question 18

A perfectly inelastic demand curve has an elasticity coefficient of:
A) 0.
B) 1.
C) less than 1.
D) infinity.

Accepted Answer

A perfectly inelastic demand curve means that no matter what the price is, quantity demanded will always be the same. In other words, the percentage change in quantity demanded is zero when there is a change in price. Therefore, the elasticity coefficient is equal to zero.

Question 19

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:
A) elastic.
B) inelastic.
C) perfectly inelastic.
D) perfectly elastic.

Accepted Answer

The percentage change in quantity demanded being greater than the percentage change in price indicates a high degree of responsiveness to price changes, which is indicative of elastic demand.

Question 20

Price elasticity of demand refers to the ratio of the:
A) percentage change in price of a good in response to a percentage change in quantity demanded.
B) percentage change in price of a good to a percentage increase in income.
C) percentage change in the quantity demanded of a good to a percentage change in its price.
D) percentage change in the quantity demanded of a good to a percentage change in income.

Accepted Answer

Price elasticity of demand refers to the percentage change in the quantity demanded of a good in response to a percentage change in its price. Choice A is close, but it refers to the percentage change in price, not quantity demanded. Choice B refers to the relationship between price and income, not price and quantity demanded. Choice D refers to income elasticity of demand, not price elasticity of demand.

Quiz 5: Price Elasticity of Demand and Supply

Suppose an increase in symphony tickets prices reduces the total revenue. This is evidence that demand is:

Along the elastic range of a demand curve, a price change causes:

An increase in total revenue results occurs from which of the following?

The price elasticity of demand for a vertical demand curve is:

If the price elasticity of demand is computed for two products, and product A measures .79, and product B measures 1.6, then:

If the percentage change in the quantity demanded of a good is less than the percentage change in price, price elasticity of demand is:

Suppose you are the manager of a local water company, and you are instructed to get consumers to reduce their water consumption by 10 percent. If the price elasticity of demand for water is 0.25, by how much would you have to raise the price of water?

If the demand for cigarettes is highly inelastic, this indicates that:

If a demand curve for a good were completely vertical, it would be considered:

Using the midpoints formula, what would be price elasticity of demand for a gallbladder operation if the number of operations fell from 6,000 to 4,000 per week after its price increased from $6,000 to $10,000?

Price elasticity of demand measures:

Suppose that a jewelry store found that when it increased prices by 10 percent, sales revenue increased by 3 percent. Which of the following is true about the price elasticity of demand for the store's goods?

If a decrease in the price of movie tickets increases the total revenue of movie theaters, this is evidence that demand is:

A local doughnut shop reduced the price of its doughnuts from $4 per dozen to $3.50 per dozen, and as a result, the daily sales increased from 300 to 400 dozen. This indicates that the price elasticity of demand for the doughnuts was:

The president of Tucker Motors says, "Lowering the price won't sell a single additional Tucker car." The president believes that the price elasticity of demand is:

Suppose that Starbucks reduces the price of its premium coffee from $2.20 to $1.80 per cup, and as a result, the quantity sold per day increased from 350 to 450. Over this price range, the price elasticity of demand for Starbucks coffee is:

Suppose the president of a college argues that a 25 percent tuition increase will raise revenues for the college. It can be concluded that the president thinks that demand to attend this college is:

A perfectly inelastic demand curve has an elasticity coefficient of:

If the percentage change in the quantity demanded of a good is greater than the percentage change in price, price elasticity of demand is:

Price elasticity of demand refers to the ratio of the: