Question 1

Which of the following statements is correct?

Accepted Answer

A)  Arc elasticity of demand is the same as the slope of the demand curve. 
B)  Arc elasticity of demand only applies to a nonlinear demand curve. 
C)  Point elasticity of demand is measured at each point along a demand curve. 
D)  Point elasticity of demand is measured between two adjacent points on a demand curve. 
A)  Arc elasticity of demand is the same as the slope of the demand curve. 
B)  Arc elasticity of demand only applies to a nonlinear demand curve. 
C)  Point elasticity of demand is measured at each point along a demand curve. 
D)  Point elasticity of demand is measured between two adjacent points on a demand curve.

Question 2

If the percentage change in quantity demanded is less than the percentage change in price, we would say that over this range, demand is:

Accepted Answer

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

Question 3

An increase in price will result in no change in total revenue if:

Accepted Answer

A)  the percentage change in price is large enough to cause quantity demanded to fall to zero. 
B)  the coefficient of elasticity is equal to zero. 
C)  the percentage change in quantity demanded is equal to the percentage change in price. 
D)  the demand function is perfectly elastic. 
A)  the percentage change in price is large enough to cause quantity demanded to fall to zero. 
B)  the coefficient of elasticity is equal to zero. 
C)  the percentage change in quantity demanded is equal to the percentage change in price. 
D)  the demand function is perfectly elastic.

Question 4

As the number of available substitutes for a good increases, the price elasticity of demand for the good will increase as well.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following statements is true when the consumer is in utility -maximizing equilibrium?

Accepted Answer

A)  The number of units of each good purchased is equal. 
B)  The prices of the goods in question must be equal. 
C)  The total benefits the consumer receives from every good consumed must be the same for all goods. 
D)  The rate at which the consumer is willing to trade one good for another is equal to the ratio of their market prices. 
A)  The number of units of each good purchased is equal. 
B)  The prices of the goods in question must be equal. 
C)  The total benefits the consumer receives from every good consumed must be the same for all goods. 
D)  The rate at which the consumer is willing to trade one good for another is equal to the ratio of their market prices.

Question 6

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?

Accepted Answer

A)  It accounts for a small part of the consumer's total income. 
B)  The good has many available substitutes. 
C)  It is a non-durable as opposed to a durable good). 
D)  There is little time for the consumer to adjust to the price change. 
A)  It accounts for a small part of the consumer's total income. 
B)  The good has many available substitutes. 
C)  It is a non-durable as opposed to a durable good). 
D)  There is little time for the consumer to adjust to the price change.

Question 7

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, the corresponding total revenue function is:

Accepted Answer

A)  6Q. 
B)  90 - 6Q. 
C)  90 - 3Q. 
D)  90Q - 3Q2. 
A)  6Q. 
B)  90 - 6Q. 
C)  90 - 3Q. 
D)  90Q - 3Q2.

Question 8

Which of the following is not a basic assumption underlying the theory of consumer behavior?

Accepted Answer

A)  Consumers prefer more to less. 
B)  Consumer preferences depend on the amounts of goods they consume as well as the amounts being consumed by other consumers. 
C)  Goods are continuously divisible, that is, consumers can always purchase one more or one less unit of a good. 
D)  Consumers have well-behaved preferences, that is, preference orderings are complete. 
A)  Consumers prefer more to less. 
B)  Consumer preferences depend on the amounts of goods they consume as well as the amounts being consumed by other consumers. 
C)  Goods are continuously divisible, that is, consumers can always purchase one more or one less unit of a good. 
D)  Consumers have well-behaved preferences, that is, preference orderings are complete.

Question 9

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple. The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the arc price elasticity of demand for movies?

Accepted Answer

A)  0.5 
B)  0.8 
C)  1.0 
D)  1.2 
A)  0.5 
B)  0.8 
C)  1.0 
D)  1.2

Question 10

Assume the demand for a good is price inelastic, i.e., ed < 1. This means that if price decreases by 50 percent, quantity demanded will:

Accepted Answer

A)  increase by more than 50 percent. 
B)  decrease by more than 50 percent. 
C)  increase by less than 50 percent. 
D)  decrease by less than 50 percent. 
A)  increase by more than 50 percent. 
B)  decrease by more than 50 percent. 
C)  increase by less than 50 percent. 
D)  decrease by less than 50 percent.

Question 11

The income elasticity of demand for health care is generally less than 1, indicating consumers consider these services to be luxuries.

Accepted Answer

A) True 
 B)False

Question 12

Over time, the price of personal computers has fallen dramatically. All else constant, this would lead us to expect that demand for personal computers has become more price elastic.

Accepted Answer

A) True 
 B)False

Question 13

In the case of a linear demand curve, average revenue is equal to price, while with the exception of Q = 1) marginal revenue is less than price.

Accepted Answer

A) True 
 B)False

Question 14

Assume an individual is currently using all of his income to consume two goods  X and Y. If the prices of X and Y are $3 and $8, respectively, and the marginal rate of substitution of X for Y is four, is this individual maximizing his net benefits from consumption? If not, what should he do to increase his total utility?

Accepted Answer

The individual is not maximizing his tot

Question 15

Many unions attempt to raise the hourly wages received by their members by restricting the supply of workers firms can hire from. Assuming the demand for workers who belong to these unions is inelastic, this would cause:

Accepted Answer

A)  wages of individual union members to decrease and the total combined) income of union members to increase. 
B)  wages of individual union members and the total combined) income of union members to decrease. 
C)  wages of individual union members to increase and the total combined) income of union members to decrease. 
D)  wages of individual union members and the total combined) income of union members to increase. 
A)  wages of individual union members to decrease and the total combined) income of union members to increase. 
B)  wages of individual union members and the total combined) income of union members to decrease. 
C)  wages of individual union members to increase and the total combined) income of union members to decrease. 
D)  wages of individual union members and the total combined) income of union members to increase.

Question 16

The last time the U.S. Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase. It can be concluded that:

Accepted Answer

A)  both groups believe demand is elastic, but for different reasons. 
B)  both groups believe demand is inelastic, but for different reasons. 
C)  the Post Office believes demand for mail service is elastic; opponents of the price increase believe demand is inelastic. 
D)  the Post Office believes demand for mail service is inelastic; opponents of the price increase believe demand is elastic. 
A)  both groups believe demand is elastic, but for different reasons. 
B)  both groups believe demand is inelastic, but for different reasons. 
C)  the Post Office believes demand for mail service is elastic; opponents of the price increase believe demand is inelastic. 
D)  the Post Office believes demand for mail service is inelastic; opponents of the price increase believe demand is elastic.

Question 17

In order to ensure consistency across goods and services, elasticities should always be calculated based on absolute changes in quantity demanded.

Accepted Answer

A) True 
 B)False

Question 18

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 profit.

Accepted Answer

A) True 
 B)False

Question 19

According to one study, the price elasticity of demand for restaurant meals is -2.27. This implies that if restaurants want to increase their total revenues they should:

Accepted Answer

A)  increase price. 
B)  decrease price. 
C)  leave price unchanged. 
D)  cannot be determined with the information given. 
A)  increase price. 
B)  decrease price. 
C)  leave price unchanged. 
D)  cannot be determined with the information given.

Question 20

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general.Ceteris paribus, we would expect the price elasticity of demand to be:

Accepted Answer

A)  larger for Levi's brand blue jeans than for blue jeans in general. 
B)  larger for blue jeans in general than for Levi's brand blue jeans. 
C)  approximately the same for both Levi's brand blue jeans and blue jeans in general. 
D)  none of the above because the market for blue jeans cannot be analyzed using the model of supply and demand. 
A)  larger for Levi's brand blue jeans than for blue jeans in general. 
B)  larger for blue jeans in general than for Levi's brand blue jeans. 
C)  approximately the same for both Levi's brand blue jeans and blue jeans in general. 
D)  none of the above because the market for blue jeans cannot be analyzed using the model of supply and demand.

Which of the following statements is correct?

If the percentage change in quantity demanded is less than the percentage change in price, we would say that over this range, demand is:

An increase in price will result in no change in total revenue if:

As the number of available substitutes for a good increases, the price elasticity of demand for the good will increase as well.

Which of the following statements is true when the consumer is in utility -maximizing equilibrium?

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, the corresponding total revenue function is:

Which of the following is not a basic assumption underlying the theory of consumer behavior?

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple. The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the arc price elasticity of demand for movies?

Assume the demand for a good is price inelastic, i.e., e_d< 1. This means that if price decreases by 50 percent, quantity demanded will:

The income elasticity of demand for health care is generally less than 1, indicating consumers consider these services to be luxuries.

Over time, the price of personal computers has fallen dramatically. All else constant, this would lead us to expect that demand for personal computers has become more price elastic.

In the case of a linear demand curve, average revenue is equal to price, while with the exception of Q = 1) marginal revenue is less than price.

Many unions attempt to raise the hourly wages received by their members by restricting the supply of workers firms can hire from. Assuming the demand for workers who belong to these unions is inelastic, this would cause:

The last time the U.S. Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase. It can be concluded that:

In order to ensure consistency across goods and services, elasticities should always be calculated based on absolute changes in quantity demanded.

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 profit.

According to one study, the price elasticity of demand for restaurant meals is -2.27. This implies that if restaurants want to increase their total revenues they should:

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general.Ceteris paribus, we would expect the price elasticity of demand to be:

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

Filters

Exam 3: Demand Elasticities

Which of the following statements is correct?

If the percentage change in quantity demanded is less than the percentage change in price, we would say that over this range, demand is:

An increase in price will result in no change in total revenue if:

As the number of available substitutes for a good increases, the price elasticity of demand for the good will increase as well.

Which of the following statements is true when the consumer is in utility -maximizing equilibrium?

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, the corresponding total revenue function is:

Which of the following is not a basic assumption underlying the theory of consumer behavior?

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple. The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons. What is the arc price elasticity of demand for movies?

Assume the demand for a good is price inelastic, i.e., ed < 1. This means that if price decreases by 50 percent, quantity demanded will:

The income elasticity of demand for health care is generally less than 1, indicating consumers consider these services to be luxuries.

Over time, the price of personal computers has fallen dramatically. All else constant, this would lead us to expect that demand for personal computers has become more price elastic.

In the case of a linear demand curve, average revenue is equal to price, while with the exception of Q = 1) marginal revenue is less than price.

Many unions attempt to raise the hourly wages received by their members by restricting the supply of workers firms can hire from. Assuming the demand for workers who belong to these unions is inelastic, this would cause:

The last time the U.S. Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase. It can be concluded that:

In order to ensure consistency across goods and services, elasticities should always be calculated based on absolute changes in quantity demanded.

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 profit.

According to one study, the price elasticity of demand for restaurant meals is -2.27. This implies that if restaurants want to increase their total revenues they should:

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general.Ceteris paribus, we would expect the price elasticity of demand to be:

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

Filters

Assume the demand for a good is price inelastic, i.e., e_d< 1. This means that if price decreases by 50 percent, quantity demanded will: