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Use The Demand Curve Diagram Below To Answer The Following Question

This document contains 7 multiple choice questions testing understanding of concepts related to price elasticity of demand and supply, including: 1. Calculating own-price elasticity using the midpoint formula and interpreting the value. 2. Identifying which statements about the relationships between price elasticity, revenue, and total expenditure are true. 3. Determining the price and quantity at which a demand curve is unit elastic and revenue is maximized.

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nishant hawelia
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109 views

Use The Demand Curve Diagram Below To Answer The Following Question

This document contains 7 multiple choice questions testing understanding of concepts related to price elasticity of demand and supply, including: 1. Calculating own-price elasticity using the midpoint formula and interpreting the value. 2. Identifying which statements about the relationships between price elasticity, revenue, and total expenditure are true. 3. Determining the price and quantity at which a demand curve is unit elastic and revenue is maximized.

Uploaded by

nishant hawelia
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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. Use the demand curve diagram below to answer the following question.

What is the own-price elasticity of demand as price increases from $2 per unit to $4 per unit?
Use the mid-point formula in your calculation.

a) 1/3.
b) 6/10.
c) 2/3.
d) None of the above.

2. Suppose that a 2% increase in price results in a 6% decrease in quantity demanded. Own-


price elasticity of demand is equal to:

a) 1/3.
b) 6.
c) 2
d) 3.

3. If own-price elasticity of demand equals 0.3 in absolute value, then what percentage
change in price will result in a 6% decrease in quantity demanded?

a) 3%
b) 6%
c) 20%.
d) 50%.
4. Suppose you are told that the own-price elasticity of supply equal 0.5. Which of the
following is the correct interpretation of this number?

a) A 1% increase in price will result in a 50% increase in quantity supplied.


b) A 1% increase in price will result in a 5% increase in quantity supplied.
c) A 1% increase in price will result in a 2% increase in quantity supplied.
d) A 1% increase in price will result in a 0.5% increase in quantity supplied.

5. Suppose that a 10 percent increase in price results in a 50 percent decrease in quantity


demanded. What does (the absolute value of) own price elasticity of demand equal?

a) 0.5.
b) 0.2.
c) 5.
d) 10.

6. If goods X and Y are SUBSTITUTES, then which of the following could be the value of
the cross price elasticity of demand for good Y?

a) -1.
b) -2.
c) Neither a) nor b).
d) Both a) and b).

7. If pizza is a normal good, then which of the following could be the value of income
elasticity of demand?

a) 0.2.
b) 0.8.
c) 1.4
d) All of the above.

8. If goods X and Y are COMPLEMENTS, the which of the following could be the value of
cross price elasticity of demand?

a) 0.
b) 1.
c) -1.
d) All of the above could be the value of cross price elasticity of demand.
New

Use the demand curve diagram below to answer the following TWO questions.

1. What is the own-price elasticity of demand as price decreases from $8 per unit to $6 per
unit? Use the mid-point formula in your calculation.

a) Infinity.
b) 7.0
c) 2.0.
d) 1.75

2. At what point is demand unit-elastic?

a) P = $6, Q = 12.
b) P = $4, Q = 8.
c) P = $2, Q = 12.
d) None of the above.

3. Which of the following statements about the relationship between the price elasticity of
demand and revenue is TRUE?

a) If demand is price inelastic, then increasing price will decrease revenue.


b) If demand is price elastic, then decreasing price will increase revenue.
c) If demand is perfectly inelastic, then revenue is the same at any price.
d) Elasticity is constant along a linear demand curve and so too is revenue.

4. Suppose BC Ferries is considering an increase in ferry fares. If doing so results in an


increase in revenues raised, which of the following could be the value of the own-price
elasticity of demand for ferry rides?
a) 0.5.
b) 1.0.
c) 1.5.
d) All of the above.

5. Use the demand diagram below to answer this question. Note that P × Q equals $900 at
every point on this demand curve.

Which of the following statements correctly describes own-price elasticity of demand, for
this particular demand curve?

I. Demand is unit elastic at a price of $30, and elastic at all prices greater than $30.
II. Demand is unit elastic at a price of $30, and inelastic at all prices less than $30.
III. Demand is unit elastic for all prices.

a) I and II only.
b) I only.
c) I, II and III.
d) III only.

6. Suppose that, if the price of a good falls from $10 to $8, total expenditure on the good
decreases. Which of the following could be the (absolute) value for the own-price elasticity
of demand, in the price range considered?

a) 1.6.
b) 2.3.
c) Both a) and b).
d) Neither a) or b).

7. Consider the demand curve drawn below.

At which of the following prices and quantities is revenue maximized?

a) P = 40; Q = 0.
b) P = 30; Q = 5.
c) P = 20; Q = 10.
d) P = 0; Q = 20.
New

1. Which of the following does NOT affect the magnitude of own-price elasticity of demand?

a) The length of the time horizon over which we are looking at the change in consumer
behaviour.
b) The availability (or lack thereof) of close substitutes for the good in question.
c) The amount by which quantity supplied will change as price changes.
d) All of the above affect the own-price elasticity of demand.

2. If a demand curve is VERTICAL, then own-price elasticity of demand for this good is
equal to:

a) Infinity.
b) Zero.
c) One.
d) None of the above.

3. If – given consumer preferences – a certain good has many close substitutes available,
then:

a) The demand for that good will be relatively inelastic, compared to goods for which there
are few close substitutes.
b) The supply of that good will be relatively inelastic, compared to goods for which there are
few close substitutes.
c) The demand for that good will be relatively elastic, compared to goods for which there are
few close substitutes.
d) The supply of that good will be relatively elastic, compared to goods for which there are
few close substitutes.

4. If – given consumer preferences – a certain good has few close substitutes available, then:

a) The demand for that good will be relatively inelastic, compared to goods for which there
are many close substitutes.
b) The supply of that good will be relatively inelastic, compared to goods for which there are
many close substitutes.
c) The demand for that good will be relatively elastic, compared to goods for which there are
many close substitutes.
d) The supply of that good will be relatively elastic, compared to goods for which there are
many close substitutes.

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