Question 1

If a change in the price of a product results in no change in total revenue,what must be the case
A)The demand for the product must be elastic.
B)The demand for the product must be inelastic.
C)The demand for the product must be unit elastic.
D)The demand for the product must be revenue inelastic.

Accepted Answer

If a change in price leads to no change in total revenue, it means that the percentage change in quantity demanded is exactly equal to the percentage change in price. This is only possible if the demand is unit elastic because only in this case the increase in revenue due to the higher price is exactly offset by the decrease in revenue due to the lower quantity demanded.

Question 2

Moving down a linear demand curve,what happens to elasticity
A)It gets smaller, then larger.
B)It gets larger.
C)It gets smaller.
D)It gets larger, then smaller.

Accepted Answer

As we move down a linear demand curve, the quantity demanded increases which leads to a decrease in price. This means that the percentage change in quantity demanded is larger than the percentage change in price, leading to a smaller elasticity of demand. Therefore, the answer is C.

Question 3

Moving down a linear demand curve,what happens to the slope and the elasticity
A)The slope and elasticity are both constant.
B)The slope changes but elasticity is constant.
C)The slope and elasticity both get smaller.
D)The slope is constant but elasticity gets smaller.

Accepted Answer

The slope of a linear demand curve is constant because it is a straight line. However, elasticity decreases as you move down the curve because elasticity measures the percentage change in quantity demanded relative to a percentage change in price, and this ratio decreases as price decreases and quantity increases.

Question 4

When demand is inelastic,what will a decrease in price cause
A)an increase in total revenue
B)a decrease in total revenue
C)no change in total revenue
D)an uncertain change in total revenue

Accepted Answer

When demand is inelastic, a decrease in price will result in a proportionally smaller increase in quantity demanded, leading to a decrease in total revenue. This is because the decrease in price isn't enough to offset the decrease in revenue caused by the decrease in quantity demanded. Conversely, an increase in price would result in an increase in total revenue.

Question 5

What would be the absolute value of the elasticity if demand is inelastic
A)less than 1
B)equal to 1
C)greater than 1
D)equal to 0

Accepted Answer

The absolute value of the elasticity is always greater than or equal to 0. If demand is inelastic, it means that the percentage change in quantity demanded is less than the percentage change in price, which results in a value of elasticity less than 1 (in absolute value). Therefore, the best choice is A.

Question 6

Suppose that 100 candy bars are demanded at a particular price.If the price of candy bars rises by 4 percent,the number of candy bars demanded falls to 92 candy bars.According to the midpoint method,what does this mean
A)The demand for candy bars in this price range is elastic.
B)The demand for candy bars in this price range is inelastic.
C)The price elasticity of demand for candy bars is 0.
D)The demand for candy bars is unit elastic.

Accepted Answer

The price elasticity of demand is calculated using the midpoint method as the percentage change in quantity demanded divided by the percentage change in price. Here, the percentage change in quantity demanded is -8% (from 100 to 92), and the percentage change in price is 4%. The elasticity is -8%/4% = -2, which is greater than 1 in absolute value, indicating elastic demand.

Question 7

What would be the absolute value of the elasticity if demand is elastic
A)less than 1
B)equal to 1
C)equal to 0
D)greater than 1

Accepted Answer

The absolute value of the elasticity is always greater than 1 if the demand is elastic. Elasticity measures the responsiveness of demand to changes in price. If demand is elastic, a small change in price will lead to a bigger change in quantity demanded. Thus, the elasticity will be greater than 1 in absolute value.

Question 8

Figure 5-2
 
-Refer to Figure 5-2.As price falls from PA to PB,which demand curve is least elastic
A)D₁
B)D₂
C)D₃
D)D₄

Accepted Answer

The answer of Figure 5-2
 
-Refer to Figure 5-2.As price...

Question 9

Moving up a linear demand curve,what happens to total revenue
A)It increases, then decreases.
B)It decreases, then increases.
C)It increases.
D)It decreases.

Accepted Answer

As you move up a linear demand curve, price increases and quantity demanded decreases. Initially, total revenue increases because the price effect dominates, but eventually, it decreases as the quantity effect dominates.

Question 10

Elasticity of demand is closely related to the slope of the demand curve.What is the slope when demand elasticity is greater
A)steeper
B)further to the right
C)flatter
D)closer to the vertical axis

Accepted Answer

When demand elasticity is greater, the slope of the demand curve is flatter. A flatter slope indicates that a change in price causes a larger change in quantity demanded, which means that the demand is more responsive to price changes. Conversely, when demand is inelastic, there is a steeper slope, indicating that quantity demanded is less responsive to price changes.

Question 11

When is demand said to be unit elastic
A)when the quantity demanded changes by the same percentage as the price
B)when the quantity demanded changes by a larger percentage than the price
C)when the quantity demanded changes by a smaller percentage than the price
D)when the quantity demanded does not respond to a change in price

Accepted Answer

Demand is said to be unit elastic when the percentage change in quantity demanded is equal to the percentage change in price. In other words, if the price of a good increases by 10%, and the quantity demanded decreases by 10%, then the demand is unit elastic. Similarly, if the price of a good decreases by 10% and the quantity demanded increases by 10%, then the demand is also unit elastic.

Question 12

Suppose the government increases the tax on gasoline in order to raise revenue.Since raising the gasoline tax would increase the price of gasoline,what must the government be assuming
A)The demand for gasoline is price elastic.
B)The demand for gasoline is price inelastic.
C)The demand for gasoline is price unit elastic.
D)The demand for gasoline is price perfect elastic.

Accepted Answer

The government must be assuming that the demand for gasoline is price inelastic since they expect to raise revenue from the tax increase despite the potential decrease in quantity demanded due to the higher price. If the demand were price elastic, the tax increase would likely result in a larger decrease in quantity demanded, causing a decrease rather than increase in revenue.

Question 13

When the price to stream movies is $4,Denise rents five per month.When the price is $3,she rents nine per month.What is Denise's demand for movie streaming,and how steep would her demand curve be
A)Her demand is elastic and the curve would be relatively flat.
B)Her demand is elastic and the curve would be relatively steep.
C)Her demand is inelastic and the curve would be relatively flat.
D)Her demand is inelastic and the curve would be relatively steep.

Accepted Answer

Denise's demand is elastic because when the price decreases from $4 to $3, her quantity demanded increases significantly from 5 to 9 per month. The curve would be relatively flat because a small change in price leads to a relatively larger change in quantity demanded.

Question 14

If a demand curve is vertical,what are its slope and elasticity
A)undefined and elasticity equals 0
B)0 and elasticity is undefined
C)undefined, as is elasticity
D)0, as is elasticity

Accepted Answer

The slope of a vertical demand curve is undefined because it is a vertical line, and the elasticity of a vertical demand curve is 0 because the quantity demanded does not change in response to changes in price.

Question 15

Figure 5-2
 
-Refer to Figure 5-2.As price falls from PA to PB,which demand curve is most elastic
A)D₁
B)D₂
C)D₃
D)D₄

Accepted Answer

The demand curve D₁ is most elastic because it is the flattest among the given curves, indicating a higher sensitivity to price changes.

Question 16

When is demand said to be inelastic
A)when the quantity demanded changes proportionately more than price
B)when the quantity demanded changes proportionately more than income
C)when the quantity demanded changes proportionately less than price
D)when the quantity demanded changes proportionately less than income

Accepted Answer

Demand is said to be inelastic when the quantity demanded changes proportionately less than price. This means that a change in price does not have a significant impact on the quantity demanded. In other words, consumers are not very sensitive to changes in price and will continue to buy similar quantities even if the price changes. This is typically the case for essential goods or goods that have few substitutes.

Question 17

When demand is unit elastic,what is the price elasticity and what is the effect on total revenue of a price change
A)The price elasticity exactly equals 1 and total revenue does not change when price changes.
B)The price elasticity exactly equals 1 and total revenue and price move in opposite directions.
C)The price elasticity exactly equals 1 and total revenue and price move in the same direction.
D)The price elasticity approaches infinity and total revenue does not change when price changes.

Accepted Answer

When demand is unit elastic, the price elasticity exactly equals 1. This means that a change in price will lead to an equal change in quantity demanded, resulting in no overall change in total revenue.

Question 18

What does a flatter demand curve represent
A)greater price elasticity of demand
B)smaller price elasticity of demand
C)price elasticity of demand that is close to the slope of the curve
D)price elasticity of demand that is equal to the slope of the curve

Accepted Answer

A flatter demand curve represents greater price elasticity of demand, meaning that a small change in price will result in a larger change in the quantity demanded. This can be visualized as the curve being more responsive to changes in price.

Question 19

If a demand curve is horizontal,what are its slope and elasticity
A)undefined and elasticity equals 0
B)0 and elasticity is undefined
C)undefined, as is elasticity
D)0, as is elasticity

Accepted Answer

A horizontal demand curve has a slope of 0, indicating perfectly elastic demand, meaning elasticity is undefined.

Question 20

What would be the absolute value of the elasticity if demand is unit elastic
A)less than 1
B)greater than 1
C)equal to 1
D)equal to 0

Accepted Answer

The absolute value of the elasticity is always positive. If demand is unit elastic, it means that the percentage change in quantity demanded is equal to the percentage change in price, giving us an elasticity of 1. Since the absolute value of elasticity is the ratio of the percentage change in quantity demanded to the percentage change in price, and it is always positive, the absolute value of the elasticity would also be 1.

Quiz 5: Elasticity and Its Application

If a change in the price of a product results in no change in total revenue,what must be the case

Moving down a linear demand curve,what happens to elasticity

Moving down a linear demand curve,what happens to the slope and the elasticity

When demand is inelastic,what will a decrease in price cause

What would be the absolute value of the elasticity if demand is inelastic

Suppose that 100 candy bars are demanded at a particular price.If the price of candy bars rises by 4 percent,the number of candy bars demanded falls to 92 candy bars.According to the midpoint method,what does this mean

What would be the absolute value of the elasticity if demand is elastic

Figure 5-2 -Refer to Figure 5-2.As price falls from PA to PB,which demand curve is least elastic

Moving up a linear demand curve,what happens to total revenue

Elasticity of demand is closely related to the slope of the demand curve.What is the slope when demand elasticity is greater

When is demand said to be unit elastic

Suppose the government increases the tax on gasoline in order to raise revenue.Since raising the gasoline tax would increase the price of gasoline,what must the government be assuming

When the price to stream movies is $4,Denise rents five per month.When the price is $3,she rents nine per month.What is Denise's demand for movie streaming,and how steep would her demand curve be

If a demand curve is vertical,what are its slope and elasticity

Figure 5-2 -Refer to Figure 5-2.As price falls from PA to PB,which demand curve is most elastic

When is demand said to be inelastic

When demand is unit elastic,what is the price elasticity and what is the effect on total revenue of a price change

What does a flatter demand curve represent

If a demand curve is horizontal,what are its slope and elasticity

What would be the absolute value of the elasticity if demand is unit elastic