It is Valentine's Day and Jason is desperately looking all over town for a dozen roses to give to Judy. Most likely, Jason's price elasticity of demand is:
a. infinitely large.
b. negative.
c. equal to one.
d. greater than one.
e. less than one.
QUESTION 2A public transit company finds that when it reduces the price of a bus ticket, total revenues remain the same. One can conclude from this that:
a. the demand curve is horizontal, reflecting infinite price elasticity.
b. the company sells the same number of bus tickets both before and after the price change.
c. the demand curve for bus tickets must have shifted to the right.
d. the firm is operating in a range of the demand curve that is unit elastic.
e. the price should be lowered further so that a larger quantity can be sold.
QUESTION 3On a part of the demand curve where the price elasticity of demand is less than 1, a decrease in price:
a. is impossible.
b. will increase total revenue.
c. will decrease total revenue.
d. raises the price elasticity of demand.
e. decreases quantity demanded.
QUESTION 4The short-run price elasticity of demand for airline travel is .05, while the long-run elasticity is 2.36 . This means that a significant increase in airline ticket prices will cause airline companies to:
a. collect less revenue from short-notice travelers.
b. collect more revenue from travelers who book well in advance.
c. lose money on short-notice travelers.
d. collect less revenue from travelers who book well in advance.
e. lose many of its short-notice travelers.
QUESTION 5When a 2 percent increase in price generates a greater than 2 percent decrease in quantity demanded, then:
a. demand is price inelastic.
b. total revenue increases.
c. demand is positively sloped.
d. demand is unit elastic.
e. total revenue decreases.
QUESTION 6If demand is price elastic, then when price decreases, total revenue:
a. decreases.
b. increases.
c. does not change.
d. is less than one.
e. is negative.
QUESTION 7An economist estimates that .67 is the price elasticity of demand for disposable diapers. This suggests that disposable diaper producers could:
a. advertise more to raise the price elasticity of demand.
b. encourage more parents to use cloth diapers.
c. lower the price of disposable diapers to raise more revenue.
d. raise the price of disposable diapers to raise more revenue.
e. maximize revenues by staying at the current price.
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