Question 1

Most demand curves are relatively elastic in the upper-left portion because the original price:
A) and quantity from which the percentage changes in price and quantity are calculated are both large.
B) and quantity from which the percentage changes in price and quantity are calculated are both small.
C) from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large.
D) from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small.

Accepted Answer

D

Question 2

The price elasticity of demand of a straight-line demand curve is:
A) elastic in high-price ranges and inelastic in low-price ranges.
B) elastic but does not change at various points on the curve.
C) inelastic but does not change at various points on the curve.
D) 1 at all points on the curve.

Accepted Answer

The price elasticity of demand varies along a straight-line demand curve. It is elastic (greater than 1) in high-price ranges because a small quantity change represents a large percentage change when the quantity is small. Conversely, it is inelastic (less than 1) in low-price ranges because a similar quantity change represents a smaller percentage change when the quantity is large.

Question 3

A perfectly inelastic demand schedule:
A) rises upward and to the right but has a constant slope.
B) can be represented by a line parallel to the vertical axis.
C) cannot be shown on a two-dimensional graph.
D) can be represented by a line parallel to the horizontal axis.

Accepted Answer

A perfectly inelastic demand schedule means that no matter how much the price changes, the quantity demanded stays the same. This is represented by a vertical line on a graph, parallel to the vertical axis.

Question 4

The basic formula for the price elasticity of demand coefficient is:
A) absolute decline in quantity demanded/absolute increase in price.
B) percentage change in quantity demanded/percentage change in price.
C) absolute decline in price/absolute increase in quantity demanded.
D) percentage change in price/percentage change in quantity demanded.

Accepted Answer

The price elasticity of demand coefficient is calculated as the percentage change in quantity demanded divided by the percentage change in price, which accurately reflects how sensitive the quantity demanded of a good is to a change in its price.

Question 5

The price elasticity of demand is generally:
A) negative,but the minus sign is ignored.
B) positive,but the plus sign is ignored.
C) positive for normal goods and negative for inferior goods.
D) positive because price and quantity demanded are inversely related.

Accepted Answer

The price elasticity of demand is generally negative because as the price of an item increases, the quantity demanded usually decreases, and vice versa, reflecting an inverse relationship. However, the minus sign is often ignored for simplicity, focusing on the magnitude of the change.

Question 6

The price elasticity of demand coefficient measures:
A) buyer responsiveness to price changes.
B) the extent to which a demand curve shifts as incomes change.
C) the slope of the demand curve.
D) how far business executives can stretch their fixed costs.

Accepted Answer

The price elasticity of demand coefficient measures how buyers change their demand for a good or service in response to a change in its price. It determines the sensitivity of quantity demanded to changes in price. Therefore, it measures buyer responsiveness to price changes.

Question 7

The demand for a product is inelastic with respect to price if:
A) consumers are largely unresponsive to a per unit price change.
B) the elasticity coefficient is greater than 1.
C) a drop in price is accompanied by a decrease in the quantity demanded.
D) a drop in price is accompanied by an increase in the quantity demanded.

Accepted Answer

Inelastic demand means that even if the price of a product changes, the quantity demanded does not change much. This is because consumers are largely unresponsive to price changes. In other words, a change in price does not significantly affect the demand for the product. Therefore, option A is the correct choice.

Question 8

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business.Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time.We can expect that each successive week:
A) demand will become more price elastic.
B) price elasticity of demand will not change as price is lowered.
C) demand will become less price elastic.
D) the elasticity of supply will increase.

Accepted Answer

The answer of Suppose Aiyanna's Pizzeria currently faces a linear...

Question 9

If the price elasticity of demand for a product is 2.5,then a price cut from $2.00 to $1.80 will:
A) increase the quantity demanded by about 2.5 percent.
B) decrease the quantity demanded by about 2.5 percent.
C) increase the quantity demanded by about 25 percent.
D) increase the quantity demanded by about 250 percent.

Accepted Answer

The price elasticity of demand of 2.5 indicates that for every 1 percent decrease in price, the quantity demanded will increase by 2.5 percent. Therefore, a price cut of 10 cents or 5 percent (from $2.00 to $1.80) will result in an increase in quantity demanded of approximately 12.5 percent (2.5 x 5). This means the new quantity demanded would be about 25 percent (12.5 + 12.5) higher than the original quantity demanded at $2.00.

Question 10

Which of the following is not characteristic of the demand for a commodity that is elastic?
A) The relative change in quantity demanded is greater than the relative change in price.
B) Buyers are relatively sensitive to price changes.
C) Total revenue declines if price is increased.
D) The elasticity coefficient is less than one.

Accepted Answer

The elasticity coefficient for a commodity that is elastic must be greater than one, indicating that the percent change in quantity demanded is greater than the percent change in price.

Question 11

If the demand for product X is inelastic,a 4 percent increase in the price of X will:
A) decrease the quantity of X demanded by more than 4 percent.
B) decrease the quantity of X demanded by less than 4 percent.
C) increase the quantity of X demanded by more than 4 percent.
D) increase the quantity of X demanded by less than 4 percent.

Accepted Answer

If the demand for a product is inelastic, it means that the consumers are not very responsive to changes in the price of the product. In other words, the percentage change in the quantity demanded is less than the percentage change in the price. So, a 4 percent increase in the price of X will not decrease the quantity of X demanded by more than 4 percent but by less than 4 percent. Therefore, option B is the correct answer.

Question 12

The price of product X is reduced from $100 to $90 and,as a result,the quantity demanded increases from 50 to 60 units.Therefore,demand for X in this price range:
A) has declined.
B) is of unit elasticity.
C) is inelastic.
D) is elastic.

Accepted Answer

The increase in quantity demanded by 20% (from 50 to 60 units) is greater than the price decrease of 10% (from $100 to $90). This indicates that demand for product X in this price range is elastic, meaning that consumers are responsive to changes in price.

Question 13

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent.We can conclude that quantity demanded:
A) increased by 7 percent.
B) decreased by 7 percent.
C) decreased by 9 percent.
D) decreased by 1.75 percent.

Accepted Answer

According to the given information, the product's price was increased by 2%, and its price elasticity of demand is 3.5. We can use the following formula to calculate the percentage change in quantity demanded:

% Change in Quantity Demanded = Price Elasticity of Demand x % Change in Price

Plugging in the values:

% Change in Quantity Demanded = 3.5 x 2%

% Change in Quantity Demanded = 7%

Thus, the quantity demanded decreased by 7% when the price was increased by 2%. The correct answer is option B.

Question 14

For a linear demand curve:
A) elasticity is constant along the curve.
B) elasticity is unity at every point on the curve.
C) demand is elastic at low prices.
D) demand is elastic at high prices.

Accepted Answer

For a linear demand curve, elasticity varies along the curve. At high prices, the percentage change in quantity demanded is relatively large compared to the percentage change in price, making demand elastic.

Question 15

If the demand for bacon is relatively elastic,a 10 percent decline in the price of bacon will:
A) decrease the amount demanded by more than 10 percent.
B) increase the amount demanded by more than 10 percent.
C) decrease the amount demanded by less than 10 percent.
D) increase the amount demanded by less than 10 percent.

Accepted Answer

If the demand for bacon is relatively elastic, the percentage change in quantity demanded will be greater than the percentage change in price. So, a 10 percent decline in the price of bacon will increase the amount demanded by more than 10 percent.

Question 16

The larger the coefficient of price elasticity of demand for a product,the:
A) larger the resulting price change for an increase in supply.
B) more rapid the rate at which the marginal utility of that product diminishes.
C) less competitive will be the industry supplying that product.
D) smaller the resulting price change for an increase in supply.

Accepted Answer

The larger the coefficient of price elasticity of demand for a product, the more sensitive consumers are to changes in price, meaning that even a small increase in price could lead to a relatively large decrease in quantity demanded. As a result, if suppliers were to increase the supply of the product, they would have to lower the price in order to entice consumers to purchase the additional quantity, but due to the high elasticity, the decrease in price would need to be relatively small in order to achieve the desired increase in quantity demanded. Therefore, the resulting price change for an increase in supply would be smaller.

Question 17

The price elasticity of demand for widgets is 0.80.Assuming no change in the demand curve for widgets,a 16 percent increase in sales implies a:
A) 1 percent reduction in price.
B) 12 percent reduction in price.
C) 40 percent reduction in price.
D) 20 percent reduction in price.

Accepted Answer

Using the formula for price elasticity of demand, we have:

% change in quantity demanded = Price elasticity of demand x % change in price

We are given that the price elasticity of demand for widgets is 0.80 and the % change in quantity demanded is 16%. We can solve for the % change in price:

16% = 0.80 x % change in price
% change in price = 20%

So a 16% increase in sales implies a 20% reduction in price (option D).

Question 18

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8,then:
A) the price elasticity of demand is 0.44.
B) A is a complementary good.
C) the price elasticity of demand is 2.25.
D) A is an inferior good.

Accepted Answer

The price elasticity of demand can be calculated using the formula:
% change in quantity demanded / % change in price

Using the provided information, we can calculate the price elasticity of demand for product A:

Price 1: $10
Quantity 1: 3,000
Revenue 1: $30,000

Price 2: $8
Quantity 2: 5,000
Revenue 2: $40,000

% Change in price = (8 - 10) / 10 = -0.2 or -20%
% Change in quantity demanded = (5,000 - 3,000) / ((5,000 + 3,000)/2) = 0.5 or 50%

Price elasticity of demand = 0.5 / -0.2 = -2.5

Since the answer must be positive, we can take the absolute value of -2.5, which is 2.5. Therefore, the price elasticity of demand for product A is 2.5, and the correct answer is C.

Question 19

Suppose that as the price of Y falls from $2.00 to $1.90,the quantity of Y demanded increases from 110 to 118.Then the price elasticity of demand is:
A) 4.00.
B) 2.09.
C) 1.45.
D) 3.94.

Accepted Answer

The price elasticity of demand is calculated using the formula: (percentage change in quantity demanded) / (percentage change in price). The percentage change in quantity demanded is ((118-110)/110)*100 = 7.27%, and the percentage change in price is ((1.90-2.00)/2.00)*100 = -5%. Thus, the elasticity is 7.27% / -5% = -1.454, which is approximately 1.45 in absolute value.

Question 20

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the:
A) more elastic the supply curve.
B) larger the elasticity of demand coefficient.
C) more elastic the demand for the product.
D) more inelastic the demand for the product.

Accepted Answer

When the demand for a product is more inelastic (i.e., the quantity demanded is not very responsive to changes in price), a leftward shift in the supply curve will result in a larger increase in equilibrium price. This is because the shift in supply will cause a larger change in the quantity supplied than the change in quantity demanded, leading to a greater increase in price. When demand is more elastic, the increase in quantity supplied will have a larger effect on lowering the price. Therefore, option D is the best choice.

Quiz 6: Elasticity

Most demand curves are relatively elastic in the upper-left portion because the original price:

The price elasticity of demand of a straight-line demand curve is:

A perfectly inelastic demand schedule:

The basic formula for the price elasticity of demand coefficient is:

The price elasticity of demand is generally:

The price elasticity of demand coefficient measures:

The demand for a product is inelastic with respect to price if:

Suppose Aiyanna's Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business.Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time.We can expect that each successive week:

If the price elasticity of demand for a product is 2.5,then a price cut from $2.00 to $1.80 will:

Which of the following is not characteristic of the demand for a commodity that is elastic?

If the demand for product X is inelastic,a 4 percent increase in the price of X will:

The price of product X is reduced from $100 to $90 and,as a result,the quantity demanded increases from 50 to 60 units.Therefore,demand for X in this price range:

Suppose we find that the price elasticity of demand for a product is 3.5 when its price is increased by 2 percent.We can conclude that quantity demanded:

For a linear demand curve:

If the demand for bacon is relatively elastic,a 10 percent decline in the price of bacon will:

The larger the coefficient of price elasticity of demand for a product,the:

The price elasticity of demand for widgets is 0.80.Assuming no change in the demand curve for widgets,a 16 percent increase in sales implies a:

If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8,then:

Suppose that as the price of Y falls from $2.00 to $1.90,the quantity of Y demanded increases from 110 to 118.Then the price elasticity of demand is:

A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: