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Various microeconomic problems

1. Inelastic demand means:
a. the percentage change in price exceeds the percentage change in quantity purchased.
b. this good would be a poor choice for taxation.
c. the change in price divided by the change in quantity is less than one.
d. the good is a necessity.

2. Prices for artificial flowers have fallen by 10 percent and the quantity the public demands has risen by 10 percent. This is an example of __________ demand.
a. elastic
b. inelastic
c. unitary elastic
d. inverse

3. Which of the following will cause total revenue earned by swimsuit producers to rise?
a. The demand is price elastic, and the price rises.
b. The price falls, and demand is inelastic.
c. Demand is reduced because consumers learn of new hazards of exposure to sunlight.
d. The population along both the East and West Coasts increases dramatically.

4. Which of the following will cause the total revenue of leotard producers to rise?
a. The demand for leotards is inelastic and their price has fallen.
b. The size of the population group that likes to wear leotards declines.
c. The price of leotards rises and the elasticity of demand for them is 0.3.
d. The price of leotards rises and the elasticity of demand is 2.0.

5. The most likely example of an inferior good is:
a. steak.
b. powdered milk.
c. jewelry.
d. BMWs.

6. As the manager of a hotel, you want to increase occupancies by 6 percent. It has been determined that the price elasticity of demand for rooms in your hotel is 0.5. This information implies:
a. the demand for rooms in your hotel is elastic.
b. if you lower your rates by 12 percent, then you will increase occupancies by 6 percent.
c. if you lower your rates, your total revenue will rise.
d. there must be many substitutes for your hotel services.

7. Regarding elasticities:
a. the more substitutes, the more elastic the demand and the more elastic the supply.
b. the shorter the time period considered, the more elastic the supply.
c. with elastic demand, a rise in price increases total revenue.
d. firms have a strong incentive to separate out people with more elastic demand and charge them a higher price.

Solution Summary

This solution is comprised of a detailed explanation to answer various microeconomic problems such as what inelastic demand means.

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