With respect to price elasticity of demand:
Answer(s): D
Choice "d" is correct. Product demand is more elastic when more substitutes are available. Choice "a" is incorrect. The longer the time period, the more product demand becomes elastic because more choices are available.Choice "b" is incorrect. Product demand is more elastic when more substitutes are available, not fewer substitutes.Choice "c" is incorrect. Product demand is more inelastic when few substitutes are available.
If demand is price inelastic:
Answer(s): C
Choice "c" is correct. If demand is price inelastic, an increase in price will result in an increase in total revenue (positive relationship).Choice "b" is incorrect. When demand is price inelastic, an increase in price results in a decrease in quantity demanded that is proportionately smaller than the increase in price, thus having the result of an increase in total revenue (price multiplied by quantity). Choices "a" and "d" are incorrect, per the above statement.
If demand is price elastic:
Answer(s): A
Choice "a" is correct. If demand is price elastic, an increase in price will result in a decline in total revenue (negative relationship).Choice "b" is incorrect. When demand is price elastic, an increase in price results in a decline in quantity demanded that is proportionately larger than the increase in price, thus having the result of a decline in total revenue (price multiplied by quantity). Choices "c" and "d" are incorrect, per the above statement.
If demand is unit elastic:
Choice "d" is correct. If demand is unit elastic, a change in price will have no effect on total revenue. Choices "a", "b", and "c" are incorrect, per the above statement.
Which of the following is incorrect with regard to government intervention in market operations?
Answer(s): B
Choice "b" is an incorrect statement and the correct choice. A price ceiling is a price that is established below the equilibrium price, which causes a shortage to develop. The statement in choice "b" defines a price floor.Choices "a", "c", and "d" are correct statements.
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