Question 1

The price elasticity of market demand primarily depends on the:

Accepted Answer

A)  number of firms in an industry. 
B)  cost of producing an industry's output. 
C)  availability of substitutes. 
D)  substitutability of inputs in producing a product. 
E)  supply curves of inputs. 
A)  number of firms in an industry. 
B)  cost of producing an industry's output. 
C)  availability of substitutes. 
D)  substitutability of inputs in producing a product. 
E)  supply curves of inputs. C

Question 2

The formula for the cross-price elasticity of demand can be written as:

Accepted Answer

A)  $\eta$XY = ($\Delta$QX / $\Delta$PY)(PY / QX) 
B)  $\eta$XY = ($\Delta$PY / $\Delta$QX)(PY / QX). 
C)  $\eta$XY = ($\Delta$PY / $\Delta$QX)(PY / QX) 
D)  $\eta$XY = ($\Delta$PY / $\Delta$QX)(QX / PY). 
E)  none of the above. 
A)  $\eta$XY = ($\Delta$QX / $\Delta$PY)(PY / QX) 
B)  $\eta$XY = ($\Delta$PY / $\Delta$QX)(PY / QX). 
C)  $\eta$XY = ($\Delta$PY / $\Delta$QX)(PY / QX) 
D)  $\eta$XY = ($\Delta$PY / $\Delta$QX)(QX / PY). 
E)  none of the above. A

Question 3

If price is $25 when the price elasticity of demand is -0.5,then marginal revenue must be:

Accepted Answer

A)  $50. 
B)  -$25. 
C)  $12.50. 
D)  $37.50. 
E)  $25. 
A)  $50. 
B)  -$25. 
C)  $12.50. 
D)  $37.50. 
E)  $25. B

Question 4

The demand for a product is more elastic the:

Accepted Answer

A)  more broadly the product is defined. 
B)  longer the time period covered. 
C)  higher the average income of consumers. 
D)  smaller the share of a consumer's income the item represents. 
E)  larger the number of firms in the market. 
A)  more broadly the product is defined. 
B)  longer the time period covered. 
C)  higher the average income of consumers. 
D)  smaller the share of a consumer's income the item represents. 
E)  larger the number of firms in the market.

Question 5

The demand for textbooks is Q = 200 - P + 25U - 50Pbeer.Assume that the unemployment rate U is 8 and the price of beer Pbeer is $2.When the average price of a textbook is P = $100,the price elasticity of demand is:

Accepted Answer

A)  -1.0. 
B)  -2.0. 
C)  -0.5. 
D)  -50. 
E)  -5.0. 
A)  -1.0. 
B)  -2.0. 
C)  -0.5. 
D)  -50. 
E)  -5.0.

Question 6

In the article "Colombia,Brazil Advance Proposal to Withhold 10 Percent of Export Output" (The Wall Street Journal,September 23,1991,p.B6),a Colombian delegate to the International Coffee Organization said that if all its members withheld 10% of export output,the international price would rise 20%.This statement implies that the price elasticity of demand for coffee is approximately:

Accepted Answer

A)  -0.00. 
B)  -5.00. 
C)  -2.00. 
D)  -0.20. 
E)  -0.50. 
A)  -0.00. 
B)  -5.00. 
C)  -2.00. 
D)  -0.20. 
E)  -0.50.

Question 7

The formula for the arc elasticity of demand can be written as:

Accepted Answer

A)  $\eta$XY = [$\Delta$QX /(Q1X + Q2X)]/[$\Delta$X/(P1X + P2X)]. 
B)  $\eta$XY = [$\Delta$QX /(Q1Y + Q2Y)]/[$\Delta$Y/(P1X + P2X)]. 
C)  $\eta$XY = [$\Delta$QX /(Q1X + Q2X)]/[$\Delta$PY/(P1Y + P2Y)]. 
D)  $\eta$XY = [$\Delta$PX /(P1X + P2X)]/[$\Delta$QY/(Q1Y + Q2Y)]. 
E)  none of the above. 
A)  $\eta$XY = [$\Delta$QX /(Q1X + Q2X)]/[$\Delta$X/(P1X + P2X)]. 
B)  $\eta$XY = [$\Delta$QX /(Q1Y + Q2Y)]/[$\Delta$Y/(P1X + P2X)]. 
C)  $\eta$XY = [$\Delta$QX /(Q1X + Q2X)]/[$\Delta$PY/(P1Y + P2Y)]. 
D)  $\eta$XY = [$\Delta$PX /(P1X + P2X)]/[$\Delta$QY/(Q1Y + Q2Y)]. 
E)  none of the above.

Question 8

Along a demand curve with unitary elasticity everywhere,total revenue:

Accepted Answer

A)  increases as output increases. 
B)  decreases as output increases. 
C)  remains constant as output increases. 
D)  increases and then decreases as output increases. 
E)  decreases and then increases as output increases. 
A)  increases as output increases. 
B)  decreases as output increases. 
C)  remains constant as output increases. 
D)  increases and then decreases as output increases. 
E)  decreases and then increases as output increases.

Question 9

The price elasticity of demand can be interpreted as the:

Accepted Answer

A)  percentage change in the quantity demanded divided by the percentage change in the good's price. 
B)  percentage change in the quantity demanded divided by the percentage change in a substitute good's price. 
C)  percentage change in the good's price divided by the percentage change in quantity demanded. 
D)  change in the quantity demanded of a good divided by the change in its price. 
E)  change in the quantity demanded of a good divided by the change in a related good's price. 
A)  percentage change in the quantity demanded divided by the percentage change in the good's price. 
B)  percentage change in the quantity demanded divided by the percentage change in a substitute good's price. 
C)  percentage change in the good's price divided by the percentage change in quantity demanded. 
D)  change in the quantity demanded of a good divided by the change in its price. 
E)  change in the quantity demanded of a good divided by the change in a related good's price.

Question 10

The income elasticity of demand is defined as the:

Accepted Answer

A)  percentage change in the quantity demanded divided by the percentage change in the price level. 
B)  change in the quantity demanded divided by the change in per capita income. 
C)  percentage change in income divided by the percentage change in the quantity demanded. 
D)  change in per capita income divided by the change in the quantity demanded. 
E)  percentage change in the quantity demanded divided by the percentage change in per capita income. 
A)  percentage change in the quantity demanded divided by the percentage change in the price level. 
B)  change in the quantity demanded divided by the change in per capita income. 
C)  percentage change in income divided by the percentage change in the quantity demanded. 
D)  change in per capita income divided by the change in the quantity demanded. 
E)  percentage change in the quantity demanded divided by the percentage change in per capita income.

Question 11

A graphical representation of the demand function is called a:

Accepted Answer

A)  demand schedule. 
B)  demand curve. 
C)  demand function. 
D)  marginal revenue schedule. 
E)  marginal revenue curve. 
A)  demand schedule. 
B)  demand curve. 
C)  demand function. 
D)  marginal revenue schedule. 
E)  marginal revenue curve.

Question 12

El Niño wind patterns affected the weather across the United States during the winter of 1997-1998.Suppose the demand for home heating oil in Connecticut is given by Q = 20 - 2Phho + 0.5Png - TEMP,where Q is the quantity of home heating oil demanded,Phho is the price of home heating oil per unit,Png is the price of natural gas per unit,and TEMP is the absolute difference between the average winter temperature over the past 10 years and the current average winter temperature.If the current price of home heating oil is $1.20,the current price of natural gas is $2.00,and the average winter temperature this year is 40 degrees compared to 28 degrees over the past 10 years,the quantity of home heating oil demanded is:

Accepted Answer

A)  6.6 gallons. 
B)  16.6 gallons. 
C)  35.4 gallons. 
D)  20 gallons. 
E)  none of the above. 
A)  6.6 gallons. 
B)  16.6 gallons. 
C)  35.4 gallons. 
D)  20 gallons. 
E)  none of the above.

Question 13

The cross-price elasticity of demand is defined as the:

Accepted Answer

A)  percentage change in the quantity demanded of a good divided by the percentage change in the good's price. 
B)  percentage change in the quantity demanded of a good divided by the percentage change in a different good's price. 
C)  percentage change in a good's price divided by the percentage change in a different good's price. 
D)  change in the quantity demanded of a good divided by the change in its price. 
E)  change in the quantity demanded of a good divided by the change in income. 
A)  percentage change in the quantity demanded of a good divided by the percentage change in the good's price. 
B)  percentage change in the quantity demanded of a good divided by the percentage change in a different good's price. 
C)  percentage change in a good's price divided by the percentage change in a different good's price. 
D)  change in the quantity demanded of a good divided by the change in its price. 
E)  change in the quantity demanded of a good divided by the change in income.

Question 14

If the elasticity of per capita demand with respect to population is zero,then a 10% increase in the population will cause the quantity demanded to:

Accepted Answer

A)  increase by 25%. 
B)  decrease by 10%. 
C)  remain constant. 
D)  increase by 10%. 
E)  decrease by 25%. 
A)  increase by 25%. 
B)  decrease by 10%. 
C)  remain constant. 
D)  increase by 10%. 
E)  decrease by 25%.

Question 15

The demand for fax machines in thousands of units has been estimated to be Q = 1,000 - 1.5P + 5L,where P is the price of the machines and L is the average cost of a 10-minute midday call from Los Angeles to New York.At a fax machine price of $400 and a phone call cost of $10,the price elasticity of demand for fax machines is:

Accepted Answer

A)  -4.0. 
B)  -2.50. 
C)  -0.61. 
D)  -0.25. 
E)  -1.33. 
A)  -4.0. 
B)  -2.50. 
C)  -0.61. 
D)  -0.25. 
E)  -1.33.

Question 16

Makers of disposable diapers must advertise 5% more to offset completely the 2% decline in sales due to heightened environmental concern.The advertising elasticity of demand is:

Accepted Answer

A)  4.0. 
B)  0.4. 
C)  2.5. 
D)  0.25. 
E)  0.20. 
A)  4.0. 
B)  0.4. 
C)  2.5. 
D)  0.25. 
E)  0.20.

Question 17

Total revenue is rising with increases in output whenever:

Accepted Answer

A)  output increases. 
B)  marginal revenue is positive. 
C)  average revenue is positive. 
D)  demand is inelastic. 
E)  average revenue is negative. 
A)  output increases. 
B)  marginal revenue is positive. 
C)  average revenue is positive. 
D)  demand is inelastic. 
E)  average revenue is negative.

Question 18

In 1965,as per capita income among a particular segment of the population fell from $10,200 to $9,800,everything else remaining constant,annual per capita consumption of beer fell from 55 to 45 gallons; this implied an income elasticity of demand for beer of:

Accepted Answer

A)  4.44. 
B)  4.55. 
C)  5.0. 
D)  4.65. 
E)  0.5. 
A)  4.44. 
B)  4.55. 
C)  5.0. 
D)  4.65. 
E)  0.5.

Question 19

Along a linear demand curve,total revenue is maximized:

Accepted Answer

A)  where the slope of a line from the origin to the demand curve is equal to the elasticity. 
B)  where the elasticity is -1. 
C)  near the quantity axis intercept. 
D)  near the price axis intercept. 
E)  where the elasticity is 0. 
A)  where the slope of a line from the origin to the demand curve is equal to the elasticity. 
B)  where the elasticity is -1. 
C)  near the quantity axis intercept. 
D)  near the price axis intercept. 
E)  where the elasticity is 0.

Question 20

The constant price elasticity of demand for cigarettes has been estimated to be -0.5.To reduce smoking by 50%,approximately how much tax needs to be added to a $1 pack?

Accepted Answer

A)  $1.00 
B)  $2.00 
C)  $3.00 
D)  $0.50 
E)  $4.00 
A)  $1.00 
B)  $2.00 
C)  $3.00 
D)  $0.50 
E)  $4.00

The price elasticity of market demand primarily depends on the:

The formula for the cross-price elasticity of demand can be written as:

If price is $25 when the price elasticity of demand is -0.5,then marginal revenue must be:

The demand for a product is more elastic the:

The demand for textbooks is Q = 200 - P + 25U - 50P_beer.Assume that the unemployment rate U is 8 and the price of beer P_beer is $2.When the average price of a textbook is P = $100,the price elasticity of demand is:

The formula for the arc elasticity of demand can be written as:

Along a demand curve with unitary elasticity everywhere,total revenue:

The price elasticity of demand can be interpreted as the:

The income elasticity of demand is defined as the:

A graphical representation of the demand function is called a:

The cross-price elasticity of demand is defined as the:

If the elasticity of per capita demand with respect to population is zero,then a 10% increase in the population will cause the quantity demanded to:

Makers of disposable diapers must advertise 5% more to offset completely the 2% decline in sales due to heightened environmental concern.The advertising elasticity of demand is:

Total revenue is rising with increases in output whenever:

In 1965,as per capita income among a particular segment of the population fell from $10,200 to $9,800,everything else remaining constant,annual per capita consumption of beer fell from 55 to 45 gallons; this implied an income elasticity of demand for beer of:

Along a linear demand curve,total revenue is maximized:

The constant price elasticity of demand for cigarettes has been estimated to be -0.5.To reduce smoking by 50%,approximately how much tax needs to be added to a $1 pack?

Introduction

Consumer Behavior and Rational Choice

Estimating Demand Functions

Production Theory

The Analysis of Costs

Perfect Competition

Monopoly and Monopolistic Competition

Managerial Use of Price Discrimination

Bundling and Intrafirm Pricing

Oligopoly

Game Theory

Auctions

Risk Analysis

Principalagent Issues and Managerial Compensation

Adverse Selection

Government and Business

Optimization Techniques

Appendix Problems

Filters

Exam 2: Demand Theory

The price elasticity of market demand primarily depends on the:

The formula for the cross-price elasticity of demand can be written as:

If price is $25 when the price elasticity of demand is -0.5,then marginal revenue must be:

The demand for a product is more elastic the:

The demand for textbooks is Q = 200 - P + 25U - 50Pbeer.Assume that the unemployment rate U is 8 and the price of beer Pbeer is $2.When the average price of a textbook is P = $100,the price elasticity of demand is:

The formula for the arc elasticity of demand can be written as:

Along a demand curve with unitary elasticity everywhere,total revenue:

The price elasticity of demand can be interpreted as the:

The income elasticity of demand is defined as the:

A graphical representation of the demand function is called a:

The cross-price elasticity of demand is defined as the:

If the elasticity of per capita demand with respect to population is zero,then a 10% increase in the population will cause the quantity demanded to:

Makers of disposable diapers must advertise 5% more to offset completely the 2% decline in sales due to heightened environmental concern.The advertising elasticity of demand is:

Total revenue is rising with increases in output whenever:

In 1965,as per capita income among a particular segment of the population fell from $10,200 to $9,800,everything else remaining constant,annual per capita consumption of beer fell from 55 to 45 gallons; this implied an income elasticity of demand for beer of:

Along a linear demand curve,total revenue is maximized:

The constant price elasticity of demand for cigarettes has been estimated to be -0.5.To reduce smoking by 50%,approximately how much tax needs to be added to a $1 pack?

Introduction

Consumer Behavior and Rational Choice

Estimating Demand Functions

Production Theory

The Analysis of Costs

Perfect Competition

Monopoly and Monopolistic Competition

Managerial Use of Price Discrimination

Bundling and Intrafirm Pricing

Oligopoly

Game Theory

Auctions

Risk Analysis

Principalagent Issues and Managerial Compensation

Adverse Selection

Government and Business

Optimization Techniques

Appendix Problems

Filters

The demand for textbooks is Q = 200 - P + 25U - 50P_beer.Assume that the unemployment rate U is 8 and the price of beer P_beer is $2.When the average price of a textbook is P = $100,the price elasticity of demand is: