Question 1

The Dean of Arts recently announced a 20% increase in tuition and explained that the increase was needed to raise the university's revenue.Which of the following might the Dean be assuming about the elasticity of demand for education at her school?
A)It is elastic.
B)It is inelastic.
C)It is perfectly elastic.
D)It could be either elastic or perfectly elastic.

Accepted Answer

The Dean's announcement of a 20% increase in tuition suggests that she assumes the demand for education at her school is inelastic. If demand were elastic, a price increase of this magnitude would likely result in a substantial drop in enrollment, which would in turn reduce the university's revenue. If demand were perfectly elastic, the university would not be able to raise its revenue at all by increasing tuition, as any increase in price would result in a total loss of customers.

Question 2

What is total revenue?
A)It is the profits from doing business.
B)It is the total value of sales less cost.
C)It is elasticity multiplied by quantity sold.
D)It is price multiplied by quantity sold.

Accepted Answer

Total revenue is calculated by multiplying the price of a product or service by the quantity sold. Therefore, the correct answer is D, "It is price multiplied by quantity sold."

Question 3

What is the effect on total revenue if demand is inelastic and price rises?
A)Total revenue will fall.
B)Total revenue will rise.
C)Total revenue may rise or fall depending on the size of the price increase.
D)Elasticity is not relevant,since total revenue always rises if price increases.

Accepted Answer

When demand is inelastic, it means that the quantity demanded does not decrease significantly as the price increases. Therefore, if the price rises, total revenue (price multiplied by quantity sold) will increase because the decrease in quantity demanded is not enough to offset the increase in price.

Question 4

What is the term for the responsiveness of quantity demanded to a change in price?
A)Elastic demand.
B)The elasticity coefficient.
C)Unitary elasticity.
D)Price elasticity of demand.

Accepted Answer

The term for the responsiveness of quantity demanded to a change in price is known as the price elasticity of demand. Option A refers to a specific type of demand where a small change in price leads to a large change in quantity demanded. Option B refers to the actual numerical value of the elasticity coefficient. Option C refers to a situation where a change in price leads to an equal percentage change in quantity demanded.

Question 5

What is price elasticity of demand?
A)The responsiveness of price to a change in the quantity demanded.
B)The responsiveness of quantity demanded to a change in price.
C)Price divided by quantity demanded.
D)Price multiplied by quantity demanded.

Accepted Answer

Price elasticity of demand measures how sensitive the quantity demanded of a good is to a change in its price. It is calculated as the percentage change in quantity demanded divided by the percentage change in price. Therefore, option B is the correct answer.

Question 6

What has happened to price if the price elasticity of demand is 2 and quantity demanded increases by 10%?
A)It increases by 10%.
B)It decreases by 5%.
C)It decreases by 20%.
D)It increases by 20%.

Accepted Answer

The price elasticity of demand formula is % change in quantity demanded / % change in price. If elasticity is 2 and quantity demanded increases by 10%, then the price must decrease by 5% to make the ratio equal 2 (10% / 5% = 2).

Question 7

What term is used to describe quantities demanded that do not change much in response to a change in price?
A)Inelastic demand.
B)Elastic demand.
C)Unitary elasticity.
D)Price elasticity of demand.
E)The elasticity coefficient.

Accepted Answer

Inelastic demand is used to describe quantities demanded that do not change much in response to a change in price. This means that the demand is relatively insensitive to changes in price.

Question 8

What is unitary elasticity?
A)An elasticity coefficient which is negative.
B)An elasticity coefficient which is equal to zero.
C)An elasticity coefficient which is equal to one.
D)A percentage change in quantity which is exactly equal to the percentage change in demand.
E)Where elasticity and inelasticity are balanced.

Accepted Answer

Unitary elasticity means that the percentage change in the quantity demanded is exactly equal to the percentage change in price. This occurs when the elasticity coefficient is equal to one. It signifies a balanced relationship between the changes in price and quantity demanded, indicating that a change in price doesn't have a significant impact on demand.

Question 9

What is the formula used to calculate the price elasticity of demand?
A)Change in price divided by change in quantity demanded.
B)Change in quantity demanded divided by change in price.
C)Percentage change in price divided by percentage change in quantity demanded.
D)Percentage change in quantity demanded divided by percentage change in price

Accepted Answer

The formula for calculating the price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in price. This measures how much the quantity demanded of a good responds to a change in the price of that good.

Question 10

What measures the responsiveness of quantity demanded to a change in price?
A)Total revenue.
B)Equilibrium price.
C)Price elasticity of demand.
D)Income elasticity.
E)Inelasticity.

Accepted Answer

Price elasticity of demand measures the percentage change in the quantity demanded in response to a percentage change in price. If the percentage change in quantity demanded is greater than the percentage change in price, the demand is considered elastic. If the percentage change in quantity demanded is less than the percentage change in price, the demand is considered inelastic. This measure helps businesses determine how much to increase or decrease prices in order to maximize total revenue.

Question 11

What is the term for the total amount of income a firm receives from its sales?
A)Total profit.
B)Total revenue.
C)Revenue coefficient.
D)Total demand.
E)Sales maximizing.

Accepted Answer

The term for the total amount of income a firm receives from its sales is its total revenue, which includes revenue from all sources, such as product sales, services, and any other types of income generated by the firm.

Question 12

What does the elasticity coefficient refer to?
A)It is price multiplied by the quantity of the product sold.
B)It indicates the responsiveness of quantity demanded to a change in price.
C)It is the responsiveness of price to a change in quantity demanded.
D)It is quantity demanded at any given price.

Accepted Answer

The elasticity coefficient refers to the responsiveness of quantity demanded to a change in price. It measures by how much the quantity demanded changes when there is a change in the price of a product.

Question 13

Suppose that the price of a product decreased from $6.50 to $5.50,and the quantity demanded increased from 55 to 65.What is the value of the price elasticity of demand?
A)0.5.
B)0.85.
C)1.0.
D)1.18.
E)2.0.

Accepted Answer

The answer of Suppose that the price of a product...

Question 14

Suppose that the price of a product increased from $1.90 to $2.10,and the quantity demanded decreased from 24 to 16.What is the value of the price elasticity of demand?
A)0.5.
B)0.58.
C)1.0.
D)1.73.
E)4.0.

Accepted Answer

The answer of Suppose that the price of a product...

Question 15

All of the following statements except one are correct concerning a product which has an elastic demand.Which is the exception?
A)Any relative change in price is greater than the relative change in quantity.
B)Buyers are relatively sensitive to price changes.
C)The elasticity coefficient is greater than one.
D)Total revenue rises if price decreases.

Accepted Answer

For a product with elastic demand, the relative change in quantity demanded is greater than the relative change in price, meaning consumers are very responsive to price changes. This is opposite to what option A states.

Question 16

What does the term elastic demand mean?
A)Quantities demanded which are not very responsive to a change in price.
B)The responsiveness of quantity demanded to a change in price.
C)An elasticity coefficient which is equal to one.
D)Quantities demanded which are quite responsive to a change in price.
E)The responsiveness of price to a change in quantity demanded.

Accepted Answer

Elastic demand means that quantities demanded are quite responsive to a change in price. This means that when the price changes, the quantity demanded changes significantly in the opposite direction. This is represented by a high elasticity coefficient.

Question 17

What will happen to the quantity demanded if the price elasticity of demand is 2 and price increases by 10%?
A)It increases by 10%.
B)It decreases by 5%.
C)It decreases by 20%.
D)It increases by 20%.

Accepted Answer

With a price elasticity of 2, a 10% increase in price will lead to a 20% decrease in the quantity demanded (since elasticity = percentage change in quantity demanded / percentage change in price).

Question 18

When is the percentage change in quantity exactly equal to the percentage change in price?
A)When there is unitary elasticity.
B)When demand is inelastic.
C)When demand is elastic.
D)When demand does not change.

Accepted Answer

When the demand for the product is unitary elastic, a percentage change in price results in an equal percentage change in the quantity demanded. In other words, if the price increases by 10%, quantity demanded decreases by 10%. Likewise, if the price decreases by 10%, quantity demanded increases by 10%.

Question 19

Under which of the following situations will total revenue fall?
A)If elasticity is > 1 and price falls.
B)If elasticity is > 1 and price rises.
C)If elasticity is < 1 and price rises.
D)If elasticity is = 1 and price falls.

Accepted Answer

When elasticity is greater than 1, a decrease in price will lead to a proportionately larger increase in quantity demanded. As a result, the total revenue will increase. Conversely, when the price is increased, the quantity demanded decreases more than proportionately, leading to a decrease in total revenue.

Question 20

Suppose that the price of a product increased from $18 to $22,and the quantity demanded decreased from 63 to 57.What is the value of the price elasticity of demand?
A)0.43.
B)0.5.
C)1.5.
D)2.0.
E)2.3.

Accepted Answer

The price elasticity of demand (PED) is calculated using the formula: PED = (% Change in Quantity Demanded) / (% Change in Price). Here, the % change in quantity demanded is (57 - 63) / 63 = -0.095 (or -9.5%), and the % change in price is (22 - 18) / 18 = 0.222 (or 22.2%). Therefore, PED = -0.095 / 0.222 ≈ -0.43 (in absolute value, since elasticity is often considered as a positive number, the correct answer is 0.43).

Quiz 4: Elasticity

The Dean of Arts recently announced a 20% increase in tuition and explained that the increase was needed to raise the university's revenue.Which of the following might the Dean be assuming about the elasticity of demand for education at her school?

What is total revenue?

What is the effect on total revenue if demand is inelastic and price rises?

What is the term for the responsiveness of quantity demanded to a change in price?

What is price elasticity of demand?

What has happened to price if the price elasticity of demand is 2 and quantity demanded increases by 10%?

What term is used to describe quantities demanded that do not change much in response to a change in price?

What is unitary elasticity?

What is the formula used to calculate the price elasticity of demand?

What measures the responsiveness of quantity demanded to a change in price?

What is the term for the total amount of income a firm receives from its sales?

What does the elasticity coefficient refer to?

Suppose that the price of a product decreased from $6.50 to $5.50,and the quantity demanded increased from 55 to 65.What is the value of the price elasticity of demand?

Suppose that the price of a product increased from $1.90 to $2.10,and the quantity demanded decreased from 24 to 16.What is the value of the price elasticity of demand?

All of the following statements except one are correct concerning a product which has an elastic demand.Which is the exception?

What does the term elastic demand mean?

What will happen to the quantity demanded if the price elasticity of demand is 2 and price increases by 10%?

When is the percentage change in quantity exactly equal to the percentage change in price?

Under which of the following situations will total revenue fall?

Suppose that the price of a product increased from $18 to $22,and the quantity demanded decreased from 63 to 57.What is the value of the price elasticity of demand?