Chapter 4 Quiz: Price Elasticity

For product X, the price elasticity of demand, E, has a value of 2. This means that quantity demanded will increase by:
a. 1 percent for each 2 percent decrease in price, ceteris paribus.
b. 1 unit for each $2 decrease in price, ceteris paribus.
c. 2 percent for each 1 percent decrease in price, ceteris paribus.
d. 2 units for each $1 decrease in price, ceteris paribus.

Suppose a university raises its tuition by 4 percent and as a result the enrollment of students decreases by 2 percent. The price elasticity of demand is:
a. 0. 50.
b. 2. 0.
c. 8. 0.
d. 6. 0.

When the percentage change in quantity demanded is less than the percentage change in price, ceteris paribus:
a. Demand is elastic.
b. Demand is inelastic.
c. Demand is unitary elastic.
d. Elasticity is impossible to calculate.

Determinants of price elasticity of demand include which of the following?
a. Availability of substitutes.
b. Price relative to budget.
c. Length of time.
d. All of the above.

Which of the following would be most likely to have a price elasticity measure (E) less than 1?
a. An addictive drug.
b. Airline travel
c. Restaurant meals.
d. New cars

Ceteris paribus, as the number of substitutes for a good increase, the:
a. price elasticity of demand should become smaller
b. price elasticity of demand should become larger.
c. cross-price elasticity of demand should become negative
d. income elasticity of demand should become negative.

Ceteris paribus, the longer the time period, the:
a. Smaller the income elasticity for the good
b. Less elastic the demand for the good
c. More unitary elastic the demand for the good.
d. More elastic the demand for the good

If the price elasticity of demand is 1.0 and a firm raises its price by 10 percent, the total revenue will:
a. Rise by 10 percent.
b. Fall by 10 percent
c. Not change
d. Rise by 100 percent

Suppose AAA Airlines is suffering from low revenues and profits. If the company wants to increase ticket revenue and the price elasticity of demand is 0. 75, the company should:
a. Increase the price of tickets
b. Decrease the price of tickets
c. Keep the price unchanged because if the price is either increased or decreased total revenues will fall.
d. Advertise. The only option the company has to raise total revenues is to advertise.

Assume the price elasticity of demand for Croc's sandals is 1. 5. If the company decreases the price of each pair of sandals, total revenue will:
a. Increase because more sandals will be sold
b. Decrease because the company will be receiving less revenue per pair of sandals
c. Increase because the percentage increase in the number sold is greater than the percentage decrease in the price.
d. Impossible to predict because we do not know the percentage change in price