Question 1

An indifference curve is negatively-sloped because:

Accepted Answer

A)  utility is a subjective concept. 
B)  as the consumer obtains additional units of one good, the consumer is willing to sacrifice increasing amounts of the other good. 
C)  in order to remain at the same level of utility, if an individual gets more of one good, he must sacrifice some of the other good. 
D)  marginal utility is constant along an indifference curve, and increases in the consumption of one good cause the price of that good to fall. 
A)  utility is a subjective concept. 
B)  as the consumer obtains additional units of one good, the consumer is willing to sacrifice increasing amounts of the other good. 
C)  in order to remain at the same level of utility, if an individual gets more of one good, he must sacrifice some of the other good. 
D)  marginal utility is constant along an indifference curve, and increases in the consumption of one good cause the price of that good to fall.

Question 2

Consider an indifference curve drawn for movies and pizzas. Which of the following statements about this indifference curve is false?

Accepted Answer

A)  As an individual consumes more pizzas, the amount of movies the consumer is willing to give up for an additional pizza increases. 
B)  If the individual consumes more pizzas, the amount of movies consumed must fall if the consumer is to stay on the same indifference curve. 
C)  The indifference curve will be convex to the origin, that is, bowed in toward the origin. 
D)  If the consumer purchases more of movies and pizzas, total utility will increase, but the consumer will be on a new indifference curve that is farther from the origin than the original indifference curve. 
A)  As an individual consumes more pizzas, the amount of movies the consumer is willing to give up for an additional pizza increases. 
B)  If the individual consumes more pizzas, the amount of movies consumed must fall if the consumer is to stay on the same indifference curve. 
C)  The indifference curve will be convex to the origin, that is, bowed in toward the origin. 
D)  If the consumer purchases more of movies and pizzas, total utility will increase, but the consumer will be on a new indifference curve that is farther from the origin than the original indifference curve.

Question 3

Information on the price elasticity of demand is particularly important to managerial decision making because:

Accepted Answer

A)  the higher the price elasticity of demand for a product is, the more profitable it will be to produce more of it. 
B)  depending on the elasticity coefficient, decision makers will immediately know if a price change will cause profits to increase or decrease. 
C)  it allows one to predict how total revenue will respond, i.e., increase or decrease, to a change in price. 
D)  as the price elasticity coefficient approaches one, profits will increase. 
A)  the higher the price elasticity of demand for a product is, the more profitable it will be to produce more of it. 
B)  depending on the elasticity coefficient, decision makers will immediately know if a price change will cause profits to increase or decrease. 
C)  it allows one to predict how total revenue will respond, i.e., increase or decrease, to a change in price. 
D)  as the price elasticity coefficient approaches one, profits will increase.

Question 4

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of demand for pizzas is:

Accepted Answer

A)  0.67. 
B)  1.5. 
C)  2.0. 
D)  3.0. 
A)  0.67. 
B)  1.5. 
C)  2.0. 
D)  3.0.

Question 5

Assume an analyst has been hired to estimate the price elasticity of demand for hamburger which sells for about $2.30 per pound) and filet mignon which sells for about $20 per pound), respectively. Considering the different determinants of the price elasticity of demand, we would expect the coefficient of price elasticity of demand to be:

Accepted Answer

A)  larger for hamburger than for filet mignon. 
B)  larger for filet mignon than for hamburger. 
C)  approximately the same for both hamburger and filet mignon. 
D)  none of the above because different determinants would have opposing effects on the two estimates. 
A)  larger for hamburger than for filet mignon. 
B)  larger for filet mignon than for hamburger. 
C)  approximately the same for both hamburger and filet mignon. 
D)  none of the above because different determinants would have opposing effects on the two estimates.

Question 6

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690. Based on this information, we can conclude that over this range, demand for Z is:

Accepted Answer

A)  elastic. 
B)  unit elastic. 
C)  inelastic. 
D)  perfectly inelastic. 
A)  elastic. 
B)  unit elastic. 
C)  inelastic. 
D)  perfectly inelastic.

Question 7

Which of the following statements is correct for the case of a downward-sloping demand curve beyond the first unit of output)?

Accepted Answer

A) P = AR = MR B) P = AR > MR C) P > AR > MR D) P = AR < MR A) P = AR = MR B) P = AR > MR C) P > AR > MR D) P = AR < MR

Question 8

When calculating the price elasticity of demand, it is assumed that all of the other determinants of demand are to be held constant.

Accepted Answer

A) True 
 B)False

Question 9

Assume that when the price of good X is $12, quantity demanded is 32. When price is decreased to $9, quantity demanded increases to 45. Based on this information, over the range in question demand is elastic.

Accepted Answer

A) True 
 B)False

Question 10

Knowledge about the price elasticity of demand is especially useful to managers because it allows them to predict how a change in price would affect a firm's total revenues.

Accepted Answer

A) True 
 B)False

Question 11

At the point on the demand curve at which marginal revenue = 0, the absolute value of the coefficient of the price elasticity of demand is:

Accepted Answer

A) > 1. B) = 1. C) < 1. D) = 0. A) > 1. B) = 1. C) < 1. D) = 0.

Question 12

Assume that, for a particular demand curve, when price rises from $50 to $60, total revenue falls from $8,750 to $7800.
a. Based on this information, what is the quantity demanded at each price.
b. Without calculating the coefficient of elasticity, is demand over this range elastic or inelastic? How do you know?

Accepted Answer

a. When price is $50, quantity demanded

Question 13

An increase in price will result in an increase in total revenue if demand is:

Accepted Answer

A)  perfectly elastic. 
B)  relatively elastic. 
C)  inelastic. 
D)  unit elastic. 
A)  perfectly elastic. 
B)  relatively elastic. 
C)  inelastic. 
D)  unit elastic.

Question 14

Assume that when the price of good X is $12, quantity demanded is 32. When price is decreased to $9, quantity demanded increases to 45. Over this range, the arc elasticity of demand is 1.182.

Accepted Answer

A) True 
 B)False

Question 15

The price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 16

A car dealer wants to get rid of the stock of last year's model. Assume that the dealer knows from past experience that the price elasticity of demand for cars is unitary = 1). If the price of the cars is currently $20,000 and the dealer wants to increase the quantity demanded from 30 units to 50 units, what must the new price be if the dealer is to sell the 20 additional cars?

Accepted Answer

A)  $10,000 
B)  $12,000 
C)  $16,000 
D)  $18,000 
A)  $10,000 
B)  $12,000 
C)  $16,000 
D)  $18,000

Question 17

Assume the income elasticity for a particular good has been estimated to be -0.68. Based on this information, we can infer that the good is inferior and a necessity.

Accepted Answer

A) True 
 B)False

Question 18

If a 10 percent increase in the price of a luxury hotel room causes the quantity demanded to decrease by 41.5 percent., we can conclude that the price elasticity of demand for luxury hotel rooms is approximately -0.24.

Accepted Answer

A) True 
 B)False

Question 19

A decrease in price will result in an increase in total revenue if:

Accepted Answer

A)  the percentage change in quantity demanded is less than the percentage change in price. 
B)  the percentage change in quantity demanded is greater than the percentage change in price. 
C)  demand is inelastic. 
D)  the consumer is operating along a linear demand curve at a point at which the price is very low and the quantity demanded is very high. 
A)  the percentage change in quantity demanded is less than the percentage change in price. 
B)  the percentage change in quantity demanded is greater than the percentage change in price. 
C)  demand is inelastic. 
D)  the consumer is operating along a linear demand curve at a point at which the price is very low and the quantity demanded is very high.

Question 20

Hot dogs and hot dog buns would be expected to have:

Accepted Answer

A)  positive income elasticities of demand with respect to each other. 
B)  negative income elasticities of demand with respect to each other. 
C)  a positive cross-price elasticity of demand. 
D)  a negative cross-price elasticity of demand. 
A)  positive income elasticities of demand with respect to each other. 
B)  negative income elasticities of demand with respect to each other. 
C)  a positive cross-price elasticity of demand. 
D)  a negative cross-price elasticity of demand.

An indifference curve is negatively-sloped because:

Consider an indifference curve drawn for movies and pizzas. Which of the following statements about this indifference curve is false?

Information on the price elasticity of demand is particularly important to managerial decision making because:

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of demand for pizzas is:

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690. Based on this information, we can conclude that over this range, demand for Z is:

Which of the following statements is correct for the case of a downward-sloping demand curve beyond the first unit of output)?

When calculating the price elasticity of demand, it is assumed that all of the other determinants of demand are to be held constant.

Assume that when the price of good X is $12, quantity demanded is 32. When price is decreased to $9, quantity demanded increases to 45. Based on this information, over the range in question demand is elastic.

Knowledge about the price elasticity of demand is especially useful to managers because it allows them to predict how a change in price would affect a firm's total revenues.

At the point on the demand curve at which marginal revenue = 0, the absolute value of the coefficient of the price elasticity of demand is:

An increase in price will result in an increase in total revenue if demand is:

Assume that when the price of good X is $12, quantity demanded is 32. When price is decreased to $9, quantity demanded increases to 45. Over this range, the arc elasticity of demand is 1.182.

The price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price.

Assume the income elasticity for a particular good has been estimated to be -0.68. Based on this information, we can infer that the good is inferior and a necessity.

If a 10 percent increase in the price of a luxury hotel room causes the quantity demanded to decrease by 41.5 percent., we can conclude that the price elasticity of demand for luxury hotel rooms is approximately -0.24.

A decrease in price will result in an increase in total revenue if:

Hot dogs and hot dog buns would be expected to have:

Managers and Economics

Demand, Supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, Firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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Exam 3: Demand Elasticities

An indifference curve is negatively-sloped because:

Consider an indifference curve drawn for movies and pizzas. Which of the following statements about this indifference curve is false?

Information on the price elasticity of demand is particularly important to managerial decision making because:

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of demand for pizzas is:

Assume that when the price of good Z is increased from $5 to $6, the total revenue earned increases from $600 to $690. Based on this information, we can conclude that over this range, demand for Z is:

Which of the following statements is correct for the case of a downward-sloping demand curve beyond the first unit of output)?

When calculating the price elasticity of demand, it is assumed that all of the other determinants of demand are to be held constant.

Assume that when the price of good X is $12, quantity demanded is 32. When price is decreased to $9, quantity demanded increases to 45. Based on this information, over the range in question demand is elastic.

Knowledge about the price elasticity of demand is especially useful to managers because it allows them to predict how a change in price would affect a firm's total revenues.

At the point on the demand curve at which marginal revenue = 0, the absolute value of the coefficient of the price elasticity of demand is:

An increase in price will result in an increase in total revenue if demand is:

Assume that when the price of good X is $12, quantity demanded is 32. When price is decreased to $9, quantity demanded increases to 45. Over this range, the arc elasticity of demand is 1.182.

The price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price.

Assume the income elasticity for a particular good has been estimated to be -0.68. Based on this information, we can infer that the good is inferior and a necessity.

If a 10 percent increase in the price of a luxury hotel room causes the quantity demanded to decrease by 41.5 percent., we can conclude that the price elasticity of demand for luxury hotel rooms is approximately -0.24.

A decrease in price will result in an increase in total revenue if:

Hot dogs and hot dog buns would be expected to have:

Managers and Economics

Demand, Supply, and Equilibrium Prices

Techniques for Understanding Consumer Demand and Behavior

Production and Cost Analysis in the Short Run

Production and Cost Analysis in the Long Run

Market Structure: Perfect Competition

Market Structure: Monopoly and Monopolistic Competition

Market Structure: Oligopoly

Pricing Strategies for the Firm

Measuring Macroeconomic Activity

Spending by Individuals, Firms, and Governments on Real Goods and Services

The Role of Money in the Macro Economy

The Aggregate Model of the Macro Economy

International and Balance of Payments Issues in the Macro Economy

Combining Micro and Macro Analysis for Managerial Decision Making

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