Question 1

A downward- sloping straight- line demand curve will

Accepted Answer

C

Question 2

The price elasticity of demand for bottled water in Yorkshire is - 0.2, while the price elasticity of demand for bottled water in London is - 1.2. In other words, demand in Yorkshire is __________ 	and demand in Lonon is ___________	.

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 value between 0 and -1 indicates inelastic demand (demand does not change significantly with price changes), while a value less than -1 indicates elastic demand (demand changes significantly with price changes). Therefore, with a price elasticity of -0.2, demand in Yorkshire is inelastic, and with a price elasticity of -1.2, demand in London is elastic.

Question 3

If the charge for a phone call were higher between 8am and 6pm than between 6pm and 8am, this could be explained by the fact that the demand for phone calls is __________	between 8am and 6pm and the demand for phone calls is __________ 	between 6pm and 8am.

Accepted Answer

The demand for phone calls is less elastic between 8am and 6pm because people are more likely to need to make calls during the day for work and other activities, making them less sensitive to price changes. Between 6pm and 8am, people are less likely to need to make calls, making the demand more elastic as they are more sensitive to price changes and can more easily adjust their calling behavior based on the cost.

Question 4

The government wants to reduce the consumption of electricity by 5%. The price elasticity of demand for electricity is - 0.4. The government should

Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. To reduce consumption by 5% with an elasticity of -0.4, the price must be increased by 5% / 0.4 = 12.5%.

Question 5

When priced at £5.00, the same amount of money was spent on DVDs as when the price was £6.00. Therefore, demand for DVDs is

Accepted Answer

When the same amount of money is spent on DVDs at two different prices, it indicates that the percentage change in quantity demanded is equal to the percentage change in price, which is the definition of unitary elasticity.

Question 6

The owner of a local hotdog stand has estimated that, if he lowers the price of hotdogs from £1.50 to£1.00, he will increase sales from 400 to 500 hotdogs per day. The demand for hotdogs is

Accepted Answer

The answer of The owner of a local hotdog stand...

Question 7

If a family spends a large part of its total budget on food, then its demand for food tends to be

Accepted Answer

When a family spends a large part of its budget on food, the demand for food tends to be elastic because any change in food prices will significantly impact their overall budget, leading them to adjust their consumption accordingly.

Question 8

The price elasticity of demand for holidays in Greece is likely to be high because

Accepted Answer

The price elasticity of demand is high when there are many substitutes available. Since there are plenty of different foreign holidays to choose from, consumers can easily switch to other destinations if the price of holidays in Greece increases.

Question 9

Total revenue will increase if

Accepted Answer

When price falls and demand is elastic, the percentage increase in quantity demanded is greater than the percentage decrease in price, leading to an increase in total revenue.

Question 10

A supermarket decides to reduce the price of its own brand of baked beans as a special offer for one week only. During this week it discovers that its total revenue on these baked beans increases. This indicates that

Accepted Answer

When a price reduction leads to an increase in total revenue, it indicates that the demand for the product is elastic with respect to price. This means that the percentage increase in quantity demanded is greater than the percentage decrease in price.

Question 11

If the owner of an ice- cream van charges £1 for an ice- cream cone, his total revenue is £400 a day. If he lowers the price to 75p, his total revenue is £350 a day. The demand for ice- cream is

Accepted Answer

The demand is inelastic because a decrease in price leads to a decrease in total revenue, indicating that the percentage change in quantity demanded is less than the percentage change in price.

Question 12

A cinema decides to increase the price of its seats and, as a result, finds that its revenue increases. This means that

Accepted Answer

When the price of an item increases and revenue also increases, it indicates that the demand for that item is inelastic with respect to price. This means that the percentage change in quantity demanded is less than the percentage change in price, leading to an increase in total revenue.

Question 13

If the income elasticity of demand for a good is positive and less than one, the good must be

Accepted Answer

When the income elasticity of demand for a good is positive and less than one, it indicates that demand for the good increases with income, but at a slower rate than income increases, classifying it as a normal good.

Question 14

The income elasticity of demand for good X is - 3. Other things being equal, which of the following is true?

Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good responds to a change in consumers' income. A negative income elasticity, like -3, indicates that the good is an inferior good, meaning that as consumers' income increases, the demand for the good decreases. Therefore, an increase in consumers' income will decrease the total revenue of suppliers of good X, as the quantity demanded decreases.

Question 15

If the income elasticity of demand for a good is positive and less than one, the good must be

Accepted Answer

When the income elasticity of demand for a good is positive and less than one, it indicates that as income increases, the demand for the good also increases, but at a slower rate than the increase in income. This characteristic is typical of a normal good, as people spend a higher proportion of their income on these goods when they have more money, but the increase in demand is proportionally less than the increase in income. Luxury goods, by contrast, have an income elasticity greater than one, indicating demand increases faster than income. Inferior goods have a negative income elasticity, meaning demand decreases as income increases. Substitute goods' demand elasticity is related to the price changes of other goods, not income changes.

Question 16

If the income elasticity of a demand for a good is negative, then the good is

Accepted Answer

When the income elasticity of demand for a good is negative, it means that as income increases, the demand for that good decreases. This characteristic is typical of inferior goods, as people tend to buy less of them as their income rises, opting instead for higher-quality alternatives.

Question 17

If the cross- price elasticity between X and Y is negative, then

Accepted Answer

When the cross-price elasticity 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.

Question 18

Which of the following defines the price elasticity of supply?

Accepted Answer

The price elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good, which is precisely what option D describes.

Question 19

Price elasticity of supply will be greater when

Accepted Answer

Price elasticity of supply is greater when firms can easily adjust their production levels. Holding large stocks (A) allows firms to quickly increase supply in response to price changes. Having spare capacity (C) means firms can increase production without significant additional costs. Over time (D), firms can adjust their production processes, acquire more resources, or find other ways to respond to price changes, increasing elasticity.

Question 20

What will be the price elasticity of supply for a vertical supply curve?

Accepted Answer

A vertical supply curve indicates that the quantity supplied is completely inelastic to price changes, meaning the price elasticity of supply is zero.

Quiz 5: Business in a Market Environment

A downward- sloping straight- line demand curve will

The price elasticity of demand for bottled water in Yorkshire is - 0.2, while the price elasticity of demand for bottled water in London is - 1.2. In other words, demand in Yorkshire is and demand in Lonon is _ .

If the charge for a phone call were higher between 8am and 6pm than between 6pm and 8am, this could be explained by the fact that the demand for phone calls is between 8am and 6pm and the demand for phone calls is between 6pm and 8am.

The government wants to reduce the consumption of electricity by 5%. The price elasticity of demand for electricity is - 0.4. The government should

When priced at £5.00, the same amount of money was spent on DVDs as when the price was £6.00. Therefore, demand for DVDs is

The owner of a local hotdog stand has estimated that, if he lowers the price of hotdogs from £1.50 to£1.00, he will increase sales from 400 to 500 hotdogs per day. The demand for hotdogs is

If a family spends a large part of its total budget on food, then its demand for food tends to be

The price elasticity of demand for holidays in Greece is likely to be high because

Total revenue will increase if

A supermarket decides to reduce the price of its own brand of baked beans as a special offer for one week only. During this week it discovers that its total revenue on these baked beans increases. This indicates that

If the owner of an ice- cream van charges £1 for an ice- cream cone, his total revenue is £400 a day. If he lowers the price to 75p, his total revenue is £350 a day. The demand for ice- cream is

A cinema decides to increase the price of its seats and, as a result, finds that its revenue increases. This means that

If the income elasticity of demand for a good is positive and less than one, the good must be

The income elasticity of demand for good X is - 3. Other things being equal, which of the following is true?

If the income elasticity of demand for a good is positive and less than one, the good must be

If the income elasticity of a demand for a good is negative, then the good is

If the cross- price elasticity between X and Y is negative, then

Which of the following defines the price elasticity of supply?

Price elasticity of supply will be greater when

What will be the price elasticity of supply for a vertical supply curve?