Title: Price Elasticity and Total Revenue
Course: TEST Course

Q: Price and total revenue are positively related when demand is
- elastic.
- unit elastic.
- inelastic.
A: inelastic.

Q: If demand is ________, an increase in price also causes an increase in total revenue.
- elastic.
- unit elastic.
- inelastic.
A: inelastic.

Q: Total revenue is defined as ________ and represented as ________.
- the price of a product divided the number of units purchased; TR - TC = Profit
- the price of a product times the number of units produced; TR=P x Qd
- the price of a product times the number of units sold; TR=P x Qd
A: the price of a product times the number of units sold; TR=P x Qd

Q: The total revenue for J-Money’s T-Shirt shop is calculated as ________.
- the price of a product divided the number of units purchased, or TR - TC = Profit
- the price of a product times the number of units produced, or TR=P x Qd
- the price of a product times the number of units sold, or TR=P x Qd
A: the price of a product times the number of units sold, or TR=P x Qd

Q: What happens to total revenue (TR) if the price decreases on a product with demand that is price elastic?
- Total revenue will fall.
- Total profit will remain the same.
- Total revenue will rise.
A: Total revenue will rise.

Q: What happens to total revenue (TR) if the price decreases on a product with demand that is price inelastic?
- Total revenue will rise.
- Total profit will remain the same.
- Total revenue will fall.
A: Total revenue will fall.

Q: What happens to total revenue (TR) if the price rises on a product with demand that is price elastic?
- Total revenue will rise.
- Total revenue will remain the same.
- Total revenue will fall.
A: Total revenue will fall.

Q: What happens to total revenue (TR) if the price rises on a product with demand that is price inelastic?
- Total revenue will fall.
- Total revenue will remain the same.
- Total revenue will rise.
A: Total revenue will rise.

Q: Complete the following sentence. Given that total revenue = price x quantity, a reduction in price will lead to an increase in total revenue when demand is
- inelastic.
- unit elastic.
- elastic.
A: elastic.

Q: Given that total revenue = price x quantity, what will happen to total revenue if price increases when demand is elastic?
- It will increase.
- It will stay the same.
- It will decrease.
A: It will decrease.

Q: You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand, several years after the price change, will be about −1.5. Select the statement that best describes the results of raising the fare in the long run.
- Total revenue rises immediately, since demand will remain price inelastic.
- Total revenue will fluctuate as the demand fluctuates.
- Total revenue falls, since demand changes and becomes price elastic.
A: Total revenue falls, since demand changes and becomes price elastic.

Q: You are the manager of the public transit system. You are informed that the system faces a deficit, but you cannot cut service, which means you cannot cut costs. Your only hope is to increase revenue by increasing fares. You are advised that the estimated price elasticity of demand for the first few months after a price change is about −0.3. Select the statement that best describes the results of raising the fare in the short run.
- Total revenue falls, since demand changes and becomes price inelastic.
- Total revenue will rise incrementally as the demand fluctuates and price moves back and forth between being elastic and inelastic.
- Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic.
A: Total revenue rises immediately after the fare increase, since demand over the immediate period is price inelastic.

Q: Suppose you are in charge of sales at a pharmaceutical company, and your firm has a new drug that causes bald men to grow hair. Assume that the company wants to earn as much revenue as possible from this drug. If the elasticity of demand for your company’s product at the current price is 1.4, what would you advise the company to do?
- raise the price
- keep the price the same
- lower the price
A: lower the price

Q: If the elasticity of demand for a company’s product is estimated to be 1.72, what would you advise the company to do if their objective is to increase revenue?
- raise the price
- keep the price the same
- lower the price
A: lower the price

Q: A person who takes life-saving prescription drugs most likely has a(n) ________demand for that drug. Therefore an increase in the price of the drug will result in ________ total revenue for the drug company.
- inelastic; decreased
- elastic; increased
- inelastic; increased
A: inelastic; increased

Q: A person who takes aspirin most likely has a(n) ________demand for that drug. Therefore an increase in the price of aspirin will result in ________ total revenue for the drug company.
- inelastic; decreased
- inelastic; increased
- elastic; decreased
A: elastic; decreased

Q: Suppose there is a major technological advance in the production of a good that causes production costs to fall. If demand for the product is relatively inelastic, what will happen in the market?
- The price decrease will be relatively less than the increase in quantity.
- Price and quantity will change by the same amount.
- The price decrease will be relatively greater than the increase in quantity.
A: The price decrease will be relatively greater than the increase in quantity.

Q: Suppose there is a major technological issue in the production of a good that causes production costs to rise. If demand for the product is relatively inelastic, what will happen in the market?
- The price increase will be relatively less than the decrease in quantity.
- Price and quantity will change by the same amount.
- The price increase will be relatively greater than the decrease in quantity.
A: The price increase will be relatively greater than the decrease in quantity.

Q: A new technological breakthrough increases production for an industry and shifts the supply curve to the right. If the firm ________, then the firm will likely be happy about this new technology.
- produces products that are considered inelastic
- produces products because consumer will buy less
- produces products that are considered elastic
A: produces products that are considered elastic

Q: A new technological hurdle decreases production for an industry and shifts the supply curve to the left. If the firm ________, then the firm will likely be unhappy about this new technology problem.
- produces products that are considered inelastic
- produces products because consumer will buy less
- produces products that are considered elastic
A: produces products that are considered elastic

Q: Good news for an industry that typically produces inelastic goods can
- be bad news for individual producers because when these factors shift the supply curve to the left it decreases total revenues.
- be good news for individual producers because when these factors shift the supply curve to the right it increases total revenues.
- be bad news for individual producers because when these factors shift the supply curve to the right it decreases total revenues.
A: be bad news for individual producers because when these factors shift the supply curve to the right it decreases total revenues.

Q: If a tobacco farmer has inelastic demand and voluntarily does not plant tobacco on 15% of their land then what scenario would happen?
- Total revenues would decrease.
- Consumers would buy more tobacco
- Total revenues would increase.
A: Total revenues would increase.

Q: Higher costs can typically be passed on to consumers when a product is considered
- elastic.
- perfectly elastic.
- inelastic.
A: inelastic.

Q: If a product is considered ________, then higher costs can be passed on to the consumer.
- elastic
- perfectly elastic
- inelastic
A: inelastic

Q: In a market with relatively inelastic demand, if the supply curve shifts due to a fall in production costs, the equilibrium price will ________ by ________ than equilibrium quantity.
- increase; less
- decrease; less
- decrease; more
A: decrease; more

Q: An increase in demand will shift the demand curve to the right, therefore ________ the equilibrium price.
- decreasing
- not change
- increasing
A: increasing

Q: Elasticities are often ________ in the short run than in the long run.
- higher
- the same
- lower
A: lower

Q: Elasticities are often ________ in the long run than in the short run.
- lower
- the same
- higher
A: higher

Q: The flatter the demand curve, the ________.
- lower the elasticity of demand
- elasticity stays the same
- higher the elasticity of demand
A: higher the elasticity of demand

Q: If the demand curve for energy is at first inelastic, then changes over time and becomes increasingly elastic, then the demand curve is
- getting steeper.
- moving outward.
- getting flatter.
A: getting flatter.

Q: The electric power company in a city increased its prices by 15% this year. Since the demand for electricity is a(n) ________ demand in the short run, the equilibrium price will ________.
- elastic; decrease
- inelastic; decrease
- inelastic; greatly increase
A: inelastic; greatly increase

Q: The electric company in a city increased its prices by 15% five years ago. Over time more people have purchased efficient appliances or switched to gas, and the demand of electricity in the long run has become more ________. Also in the long run the equilibrium quantity demanded has ________.
- inelastic; decrease
- elastic; increased
- elastic; decreased
A: elastic; decreased

Q: When supply is inelastic and demand is elastic, the tax incidence falls on ________.
- the consumer
- government
- the producer
A: the producer

Q: When supply is elastic and demand is inelastic, the tax incidence falls on the ________.
- producer
- government
- consumer
A: consumer

Q: If the demand for a product is inelastic but the supply is elastic, the ________ will bear the tax incidence.
- producer
- government
- consumer
A: consumer

Q: The demand for cigarettes is highly inelastic. This suggests that the incidence of a higher tax on cigarettes will fall primarily on
- cigarette sellers.
- government.
- cigarette consumers.
A: cigarette consumers.

Q: The government imposes an excise tax on house paint. The house paint tax incidence takes place within a market where the supply of house paint is elastic and the demand for house paint is inelastic. Who pays the most of the excise tax?
- producers of house paint
- the government
- consumers of house paint
A: consumers of house paint

Q: The government imposes an excise tax on house paint. The house paint tax incidence takes place within a market where the supply of house paint is perfectly inelastic and the demand for house paint is perfectly elastic. The excise tax is paid by the
- government.
- consumers of house paint.
- producers of house paint.
A: producers of house paint.

Q: A tax is imposed on chewing gum. Consumers pay all of the tax while the producers pay none of the tax. If you were to draw a graph you would see that the demand curve
- is relatively inelastic.
- perfectly elastic.
- perfectly inelastic.
A: perfectly inelastic.

Q: A tax is imposed on chewing gum. Chewing gum producers pay all of the bulk of the tax while the consumers pay little of the tax. If you were to draw a graph you would see that the curve
- for demand shifts upward.
- for supply shifts downward.
- for supply shifts upward.
A: for supply shifts upward.