Question 1

Moving upward along a downward sloping straight-line demand curve, as the price of the product goes up,

Accepted Answer

Moving upward along a downward sloping straight-line demand curve means that we are increasing the price of the product. As the price increases, the quantity demanded decreases. The price elasticity of demand measures the responsiveness of quantity demanded to changes in price.

When we start at a low price, the demand is generally elastic (i.e., price elastic). This means that a small change in price leads to a relatively larger change in quantity demanded. As we move up the demand curve, the price elasticity of demand decreases, meaning that quantity demanded becomes less responsive to changes in price.

Therefore, as we move upward along a downward sloping straight-line demand curve, the price elasticity of demand goes from being elastic to being inelastic. So, option C is incorrect. When we move upward along a downward sloping straight-line demand curve, the price elasticity of demand does change, so option A is incorrect. The price elasticity of demand is always negative (as price and quantity demanded move in opposite directions), so option D is incorrect. Thus, the correct answer is B.

Question 2

Over the inelastic range of a demand curve, there is

Accepted Answer

The answer of Over the inelastic range of a demand...

Question 3

Moving downward on a downward sloping linear demand curve, the absolute value of the price elasticity of demand

Accepted Answer

On a downward sloping linear demand curve, the price elasticity of demand decreases as we move down the curve, because as the price decreases, the percentage change in quantity demanded becomes smaller and smaller, resulting in a smaller price elasticity of demand. Therefore, the absolute value of the price elasticity of demand decreases continuously.

Question 4

Suppose that the demand for men's ties is price inelastic for the range of prices between $10 and $12. If Joe raises the price of the ties in his shop from $10 to $12, what will happen to Joe's total revenues?

Accepted Answer

Since the demand is price inelastic, increasing the price will not result in a significant decrease in demand. Therefore, as the price increases, the total revenue will also increase.

Question 5

-In the above figure, along which range would total revenue remain unchanged by raising prices?

Accepted Answer

Total revenue is equal to price times quantity. If price increases, quantity demanded will decrease. To keep total revenue unchanged, the decrease in quantity demanded must be exactly offset by the increase in price. This will occur only if the price elasticity of demand is equal to -1. The graph shows that the price elasticity of demand is -1 between points a and b.

Question 6

A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.1. To increase its revenue, the transit authority should

Accepted Answer

Based on the given elasticity of demand, the transit authority should lower the fare as the demand for bus trips is likely to increase (demand is elastic). This means that for every 1% decrease in price, the quantity demanded will increase by 1.1%. Therefore, a decrease in fare will result in increased revenue as the increased ridership will offset the lower fare. Of the options provided, only choice C (lower the fare) is consistent with this analysis.

Question 7

Within the range of prices around the midpoint on a straight-line demand curve, demand is

Accepted Answer

Demand is unit-elastic when the percentage change in the quantity demanded is equal to the percentage change in price. This occurs at the midpoint of a straight-line demand curve, where the price elasticity of demand is 1. Therefore, within the range of prices around the midpoint, demand is unit-elastic.

Question 8

If total revenues rise when the market price increases, then we know that

Accepted Answer

If total revenues increase when the market price increases, it means that the percent increase in price is greater than the percent decrease in quantity demanded. This suggests that the demand is inelastic, as a change in price has a relatively small impact on the quantity demanded.

Question 9

-In the above figure, along which range would total revenue rise by raising prices?

Accepted Answer

Total revenue rises when demand is inelastic, which typically occurs at higher price ranges, such as between point d and point e.

Question 10

If the price of a good increases and the total revenue also increases, the good has a(n)

Accepted Answer

If the total revenue increases when the price of a good increases, the demand for the good must be inelastic. Inelastic demand means that consumers are not very responsive to price changes and are willing to pay more for the good despite the price increase, resulting in an increase in total revenue.

Question 11

A university raises annual tuition by 10 percent. No other events have occurred, and the university's revenues have increased. It must be true that

Accepted Answer

The increase in revenue despite the tuition hike indicates that the decrease in quantity demanded was less than the percentage increase in price, meaning demand is inelastic.

Question 12

-Consider the above figure. Which of the following statements is correct?

Accepted Answer

At the crossing point, the steeper demand curve (D1) is less elastic than the flatter demand curve (D2), meaning D1 has a greater price elasticity of demand.

Question 13

If the slope of a demand curve is constant, then we know that

Accepted Answer

The slope of a demand curve tells us how much the quantity demanded changes in response to a change in price. The elasticity of demand, on the other hand, tells us how responsive quantity demanded is to a change in price. If the slope of the demand curve is constant, then we know that the change in quantity demanded is proportional to the change in price, but we do not know how responsive quantity demanded is overall. Therefore, elasticity of demand varies along the demand curve.

Question 14

If total revenues decline when the market clearing price increases, then we know that

Accepted Answer

When total revenues decline as the price increases, it indicates that demand is sensitive to the change in price. This is characteristic of elastic demand, where a small change in price leads to a significant change in the quantity demanded.

Question 15

If demand is unit-elastic throughout the demand curve, then total revenues are

Accepted Answer

When demand is unit-elastic, the percentage change in quantity demanded is equal to the percentage change in price, meaning total revenue (price times quantity) remains constant regardless of the price.

Question 16

Suppose 1000 units of a good are sold at $10 a unit. If price increases to $15 and total revenue increases to $15,000 and increases by $1000 for every dollar increase in price after that, we know that

Accepted Answer

The answer of Suppose 1000 units of a good are...

Question 17

Total revenues reach a maximum when

Accepted Answer

Total revenues reach a maximum when demand is unit-elastic, which means that the percentage change in quantity demanded is equal to the percentage change in price. At this point, the increase in revenue from a higher price will be offset by the decrease in revenue from a lower quantity demanded, resulting in the highest possible revenue. When demand is elastic, increasing the price will lead to a significant decrease in quantity demanded, causing a decrease in total revenue. When demand is inelastic, increasing the price may lead to a slight decrease in quantity demanded, but the increase in price will result in an increase in total revenue. However, the increase in revenue will be less than the decrease in revenue that would occur if demand was unit-elastic. Therefore, choice C is the best answer.

Question 18

A movie theatre raises ticket prices from $8 to $10 in order to raise revenues. The theatre's management is assuming the absolute value of the price elasticity of demand for tickets is

Accepted Answer

When the management of the theatre raises the ticket prices, they expect to make more money from the same number of customers or fewer customers. To accomplish this, the price elasticity of demand must be less than 1, indicating that a price increase does not cause a proportionate decrease in the quantity demanded. If the elasticity were greater than 1, then the higher price would result in a significant reduction in demand, and the revenue would decrease instead of increasing. Therefore, the best choice is A) less than 1.

Question 19

If the bus fare of a city increases from $1.00 to $1.25 per ride and as a result total revenue increases, then we know that

Accepted Answer

If the total revenue increases after increasing the fare, it means that the increase in fare has a greater impact than the decrease in the number of rides. This implies that the percentage change in fare is greater than the percentage change in the number of rides.

Question 20

If demand is perfectly elastic everywhere along the demand curve, then

Accepted Answer

When demand is perfectly elastic, the demand curve is horizontal, indicating that consumers are willing to buy any quantity at a specific price, but no quantity at a price even slightly higher.

Quiz 19: Demand and Supply Elasticity