151) If a 20 percent decrease in the price of a good leads to a 15 percent increase in the quantity demanded, then demand is and total revenue will as a result of the fall in price.
A) elastic; increase
B) elastic; decrease
C) inelastic; increase
D) inelastic; decrease
152) The price elasticity of demand for wheat is 0.42. A drought cuts the supply of wheat. What will happen to the farmers’ total revenue?
A) The total revenue will increase.
B) The total revenue will decrease.
C) The total revenue will not change.
D) There is not enough information to determine what happens to the total revenue.
153) The price elasticity of demand for corn is 0.4. A new hybrid of corn is discovered and all farmers start to use it, which increases the quantity of corn they can produce from each acre. What happens to the farmers’ total revenue?
A) The total revenue will increase.
B) The total revenue will decrease.
C) The total revenue will not change.
D) There is not enough information to determine what happens to the total revenue.
154) A university conducts a survey of students, which shows that a 10 percent tuition hike would lead to a 12 percent decrease in the enrollment. If the university wants to increase its total revenue, it should tuition because the demand for education at this university is .
A) raise; elastic
B) not raise; elastic
C) raise; inelastic
D) not raise; inelastic
155) A university conducts a survey of students, which shows that a 10 percent tuition hike would lead to a 7 percent decrease in the enrollment. If the university wants to increase its total revenue, it should tuition because the demand for education at this university is .
A) raise; elastic
B) not raise; elastic
C) raise; inelastic
D) not raise; inelastic
156) The price of a bus ride decreases, and the total revenue of the bus company decreases. The demand for bus rides is __.
A) perfectly elastic
B) inelastic
C) unit elastic
D) elastic but not necessarily perfectly elastic
157) The price elasticity of demand for gasoline is 0.40. If the price of gasoline rises by 20 percent, there will be
A) a decrease of more than 20 percent in the quantity of gasoline demanded.
B) an increase in the total revenue received from the sale of gasoline.
C) a loss of total revenue for gasoline producers, because at a higher price the quantity of gasoline demanded decreases.
D) no change in the quantity of gasoline sold because people need gasoline.
158) When Monica’s Catering lowered the price of catered meals from $60 per person to $20 per person, the quantity demanded doubled from 500 meals to 1,000 meals. You can conclude that the demand for Monica’s catered meals over the price range of $20 to $60 is
A) upward sloping.
B) unit elastic.
C) elastic.
D) inelastic.
159) If the demand for a good is unit elastic,
A) a 5 percent increase in price results in a 5 percent increase in total revenue.
B) a 5 percent increase in price results in a 5 percent decrease in total revenue.
C) a 5 percent increase in price does not change total revenue.
D) the demand curve is a straight line with slope of -1.
160) If OPEC, a group of oil producing nations, cuts oil production to increase the total revenue, OPEC presumes that the demand for oil is
A) perfectly elastic.
B) unit elastic.
C) elastic.
D) inelastic.
The Correct Answer and Explanation is :
Answers and Explanation:
151) Answer: C) inelastic; increase
- Explanation: Price elasticity of demand (PED) is calculated as the percentage change in quantity demanded divided by the percentage change in price. PED=%ΔQd%ΔP=15%20%=0.75PED = \frac{\% \Delta Q_d}{\% \Delta P} = \frac{15\%}{20\%} = 0.75 Since the absolute value is less than 1, demand is inelastic. When demand is inelastic, a decrease in price leads to a decrease in total revenue. However, when price decreases, revenue increases if demand is elastic.
152) Answer: A) The total revenue will increase.
- Explanation: The price elasticity of demand for wheat is 0.42 (inelastic). When supply decreases (due to a drought), the price of wheat rises. Since demand is inelastic, the percentage drop in quantity demanded is smaller than the percentage increase in price, leading to higher total revenue for farmers.
153) Answer: B) The total revenue will decrease.
- Explanation: The price elasticity of demand for corn is 0.4 (inelastic). An increase in supply leads to a fall in price. Since demand is inelastic, the percentage increase in quantity demanded is smaller than the percentage decrease in price, resulting in a fall in total revenue.
154) Answer: B) not raise; elastic
- Explanation: The price elasticity of demand is: PED=12%10%=1.2PED = \frac{12\%}{10\%} = 1.2 Since demand is elastic (greater than 1), increasing tuition would lead to a decrease in total revenue. The university should not raise tuition.
155) Answer: C) raise; inelastic
- Explanation: The price elasticity of demand is: PED=7%10%=0.7PED = \frac{7\%}{10\%} = 0.7 Since demand is inelastic (less than 1), raising tuition increases total revenue. The university should raise tuition.
156) Answer: B) inelastic
- Explanation: When a decrease in price leads to a decrease in total revenue, demand is inelastic, meaning consumers are relatively unresponsive to price changes.
157) Answer: B) an increase in the total revenue received from the sale of gasoline.
- Explanation: Since gasoline has an elasticity of 0.40 (inelastic), an increase in price leads to higher total revenue because the percentage decrease in quantity demanded is smaller than the percentage increase in price.
158) Answer: C) elastic
- Explanation: The price decreases from $60 to $20 (a 66.67% decrease), and the quantity demanded doubles from 500 to 1,000 (a 100% increase). PED=100%66.67%=1.5PED = \frac{100\%}{66.67\%} = 1.5 Since PED > 1, demand is elastic.
159) Answer: C) a 5 percent increase in price does not change total revenue.
- Explanation: When demand is unit elastic (PED = 1), total revenue remains constant despite changes in price.
160) Answer: D) inelastic
- Explanation: If OPEC reduces oil production to increase total revenue, they assume demand is inelastic (PED < 1). When demand is inelastic, a decrease in supply raises prices more than it reduces quantity demanded, leading to higher total revenue.