Question 1

For a normal good,the income elasticity of demand is:

Accepted Answer

A) positive or negative depending on the share of income accounted for by the good. 
B) always equal to 1. 
C) positive if income increases and negative when income declines. 
D) always positive. 
A) positive or negative depending on the share of income accounted for by the good. 
B) always equal to 1. 
C) positive if income increases and negative when income declines. 
D) always positive.

Question 2

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 and assuming the consumers in both markets have approximately the same incomes,we would expect the coefficient of price elasticity of demand in absolute value 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 3

For a linear demand function,slope and the price elasticity of demand are equal.

Accepted Answer

A) True 
 B)False

Question 4

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 5

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 6

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 is

Question 7

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

Question 8

As we move down a linear demand curve,the absolute value of the price elasticity of demand:

Accepted Answer

A) increases. 
B) stays the same. 
C) decreases. 
D) cannot be determined without more information. 
A) increases. 
B) stays the same. 
C) decreases. 
D) cannot be determined without more information.

Question 9

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 10

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 11

Suppose a consumer's income increases from $30,000 to $36,000.As a result,the consumer increases her purchases of compact disks (CDs)from 25 CDs to 30 CDs.What is the consumer's income elasticity of demand for CDs?

Accepted Answer

A) 0.5 
B) 1.0 
C) 1.5 
D) 2.0 
A) 0.5 
B) 1.0 
C) 1.5 
D) 2.0

Question 12

Assume the demand function for a particular good can be written as P = 150 - 6Q.When P = 12,the point elasticity of demand equals 2.08.

Accepted Answer

A) True 
 B)False

For a normal good,the income elasticity of demand is:

For a linear demand function,slope and the price elasticity of demand are equal.

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.

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:

As we move down a linear demand curve,the absolute value of the price elasticity of demand:

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

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

Suppose a consumer's income increases from $30,000 to $36,000.As a result,the consumer increases her purchases of compact disks (CDs)from 25 CDs to 30 CDs.What is the consumer's income elasticity of demand for CDs?

Assume the demand function for a particular good can be written as P = 150 - 6Q.When P = 12,the point elasticity of demand equals 2.08.

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

For a normal good,the income elasticity of demand is:

For a linear demand function,slope and the price elasticity of demand are equal.

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.

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:

As we move down a linear demand curve,the absolute value of the price elasticity of demand:

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

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

Suppose a consumer's income increases from $30,000 to $36,000.As a result,the consumer increases her purchases of compact disks (CDs)from 25 CDs to 30 CDs.What is the consumer's income elasticity of demand for CDs?

Assume the demand function for a particular good can be written as P = 150 - 6Q.When P = 12,the point elasticity of demand equals 2.08.

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