Q: Suppose the price of a cup of coffee increases by 10%, and as a result, the quantity demanded falls by 20%. What is the price elasticity of demand for coffee?

$$\text{Elasticity} = \frac{20\%}{10\%} = 2$$

Q: A 15% increase in the price of movie tickets leads to a 10% decrease in quantity demanded. What is the price elasticity of demand, and how would you classify the demand?

$$\text{Elasticity} = \frac{10\%}{15\%} = 0.67$$, which is inelastic.

Q: Which of the following formulas correctly calculates total revenue?

$$\text{Total Revenue} = \text{Price} \times \text{Quantity Sold}$$

Q: A 5% decrease in the price of a product leads to a 5% increase in quantity demanded. What is the price elasticity of demand, and what does it indicate?

$$\text{Elasticity} = \frac{5\%}{5\%} = 1$$, indicating unit elastic demand.

Question 1

Suppose the price of a cup of coffee increases by 10%, and as a result, the quantity demanded falls by 20%. What is the price elasticity of demand for coffee?

Accepted Answer

$$	ext{Elasticity} = \frac{20\%}{10\%} = 2$$

Question 2

If a product has a price elasticity of demand equal to 0, what does this imply about consumer behavior?

Accepted Answer

Consumers will buy the same quantity regardless of the price.

Question 3

A pharmaceutical company increases the price of a life-saving drug, and total revenue rises. What does this indicate about the price elasticity of demand for the drug?

Accepted Answer

Demand is inelastic.

Question 4

Which of the following best describes a good with many close substitutes?

Accepted Answer

It is likely to have a high price elasticity of demand.

Question 5

If the price elasticity of demand for a product is $$1.5$$, what happens to total revenue if the price increases?

Accepted Answer

Total revenue decreases.

Question 6

A 15% increase in the price of movie tickets leads to a 10% decrease in quantity demanded. What is the price elasticity of demand, and how would you classify the demand?

Accepted Answer

$$	ext{Elasticity} = \frac{10\%}{15\%} = 0.67$$, which is inelastic.

Question 7

Which of the following statements about total revenue and elasticity is correct?

Accepted Answer

If demand is elastic, a price decrease will increase total revenue.

Question 8

A local government imposes a tax on cigarettes. If the demand for cigarettes is inelastic, who will bear most of the tax burden?

Accepted Answer

Consumers will bear most of the tax burden.

Question 9

Which of the following formulas correctly calculates total revenue?

Accepted Answer

$$	ext{Total Revenue} = 	ext{Price} 	imes 	ext{Quantity Sold}$$

Question 10

If a firm wants to determine whether the demand for its product is elastic, unit elastic, or inelastic, what is the most practical method?

Accepted Answer

Change the price slightly and observe the effect on total revenue.

Question 11

A 5% decrease in the price of a product leads to a 5% increase in quantity demanded. What is the price elasticity of demand, and what does it indicate?

Accepted Answer

$$	ext{Elasticity} = \frac{5\%}{5\%} = 1$$, indicating unit elastic demand.

Question 12

If the price elasticity of demand for a product is less than 1, what does this mean?

Accepted Answer

Demand is inelastic.

Question 13

Which of the following best defines perfectly elastic demand?

Accepted Answer

A small change in price leads to an infinite change in quantity demanded.

Question 14

If a product is a necessity with no close substitutes, what can you infer about its price elasticity of demand?

Accepted Answer

It is likely to be inelastic.

Question 15

Suppose a firm sells a product with unit elastic demand. If the firm increases the price, what happens to total revenue?

Accepted Answer

Total revenue remains unchanged.

Question 16

A luxury car manufacturer notices that when it raises prices, its total revenue increases. What does this suggest about the price elasticity of demand for its cars?

Accepted Answer

Demand is inelastic.

Question 17

If the price of bread rises and the price elasticity of demand is estimated at $$-0.40$$, what happens to sales revenue?

Accepted Answer

It rises.

Question 18

Which of the following is most likely to have a perfectly inelastic demand curve?

Accepted Answer

A life-saving medication with no substitutes.

Question 19

If the price elasticity of demand for a product is greater than 1, what does this mean?

Accepted Answer

Demand is elastic.

Question 20

A company sells a product with a price elasticity of demand of $$-2.0. If $$the company wants to increase total revenue, what should it do?

Accepted Answer

Lower the price.

Price Elasticity of Demand and Total Revenue: Microeconomics Study Guide

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