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Homework answers / question archive / University of Waterloo MICROECONO AFM101 Chapter 4 1)How does the price elasticity of demand influence total revenue when a price cut occurs? If a price cut increases total revenue, demand is
University of Waterloo
MICROECONO AFM101
Chapter 4
1)How does the price elasticity of demand influence total revenue when a price cut occurs?
If a price cut increases total revenue, demand is . If a price cut decreases total revenue, demand is .
A. unit elastic; inelastic
B. inelastic; elastic
C. elastic; inelastic
D. elastic; unit elastic
2. If a price cut leaves total revenue unchanged, demand is .
A. elastic
B. unit elastic
C. inelastic
3. When the price of a litre of gasoline falls by 2 percent, Tony increases the quantity he buys by 5 percent.
Tony's expenditure on gasoline .
A. decreases
B. increases, decreases, or remains the same depending on how much driving he plans to do that week
C. remains the same
D. increases
Draw a demand curve for hotdogs. Label it
D1.
Draw a second demand curve for hotdogs that shows the effect of a rise in the price of a bottle of ketchup if the cross elasticity of demand for hotdogs with respect to the price of a bottle of ketchup is negative. Label it
D2.
4. If the cross elasticity of demand for hotdogs with respect to the price of a bottle of ketchup is negative, hot dogs and ketchup are .
A. inferior goods
B. substitutes
C. normal goods
D. complements
The table gives some data on the supply of rosesroses in a small town.
5. When the price rises from $15 a dozen to $25 a dozen, the elasticity of supply is .
A. 1.25
B. 0.20
C. 0.80
D. 5.00
Complete the sentence.
6. When calculating the price elasticity of demand, we calculate the change in the quantity demanded as the percentage of the average price and the change in the quantity as a percentage change of the average quantity because this method .
A. allows us to calculate the price elasticity of demand as a positive number
B. is the only one that will calculate a value of zero when demand is perfectly inelastic
C. gives a units-free measure
D. gives the same value for the elasticity regardless of whether the price falls or rises
The table gives the demand schedule for peanuts.
7. When the price of peanuts falls from $0.80 to $0.40 a packet, what is the change in total revenue? The change in total revenue is dollars.
Over the price range of $0.40 to $0.80 the demand for peanuts is .
A. elastic
B. inelastic
C. unit elastic
Complete the sentence.
8. The supply of apples in the short run will be than the supply in the long run and than the supply today.
A. less elastic; more elastic
B. more elastic; less elastic
C. more elastic; more elastic
D. less elastic; less elastic
Draw a curve that shows the relationship between quantity and total revenue when the demand curve for umbrellas is linear. Label it
TR.
Draw a point on the curve at which demand is elastic. Label it Elastic. Draw a point on the curve at which demand is inelastic. Label it Inelastic.
9. Draw a point on the curve at which demand is unit elastic. Label it Unit Elastic. If demand is elastic, a 1 percent price cut the quantity sold by .
A. increases; less than 1 percent
B. increases; more than 1 percent
C. decreases; more than 1 percent
D. decreases; 1 percent
William loves candy bars.
10. As the price of a candy bar increases from $1.00 to $1.25 to $1.50, William continues to buy a dozen candy bars every week.
William's demand for candy bars is .
A. illustrated by a horizontal demand curve
B. elastic
C. perfectly inelastic
D. unit elastic
Complete the sentence.
11. The factors that influence the elasticity of supply are .
A. the proportion of income spent on the good and resource substitution possibilities
B. the cross elasticity of demand and the price elasticity of demand
C. resource substitution possibilities and the time frame for the supply decision
D. the proportion of income spent on the good and the time frame for the supply decision
.
12. When Jen's income increases by 6 percent, her demand for tickets to professional hockey games increases by 3 percent.
Jen's demand for tickets is income . For Jen, hockey tickets are good.
A. inelastic; a normal
B. elastic; an inferior
C. inelastic; an inferior
D. elastic; a normal
Complete the following sentences.
13. The price elasticity of demand for gasoline in the long run .
A. ranges between 0.5 and 1
B. ranges between 1 and 2
C. depends on the change in income
D. is zero. The quantity of gasoline demanded does not respond to a change in the price of gasoline
Dan sells newspapers.
14. Dan says that a 10 percent increase in the price of a newspaper will decrease the quantity of newspapers demanded by 12 percent.
According to Dan, the demand for newspapers is .
A. perfectly elastic
B. inelastic
C. unit elastic
D. elastic
15. Webster Dictionaries and Oxford Dictionaries are almost perfect substitutes. The price elasticity of demand for Webster Dictionaries .
A. is 1
B. is almost infinity
C. is almost zero
D. depends on the complements for dictionaries
16. The demand curve for bus rides is a downward-sloping straight line. The price elasticity of demand for bus rides .
A. decreases as the price of a bus ride falls
B. increases as the price of a bus ride falls
C. is constant as the price of a bus ride falls or rises
D. decreases as the price of a bus ride rises
