Exam 3: Demand Elasticities

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?

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?

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.

Assume the marginal revenue from each additional unit of a good sold is 0.In this case, we can conclude that demand for the good is:

We would expect the cross price elasticity of demand between digital cameras and film cameras to be positive.

Suppose the demand for meals at a medium-priced restaurant is elastic.If the management of the restaurant is considering raising prices, it can expect a relatively:

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.

Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand?

Assuming the demand curve in question is downward sloping, the calculated price elasticity of demand will always be negative.

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:

Provide a simple definition of the price elasticity of demand and explain why knowing the price elasticity for her product is useful to the firm's manager.

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

Consider two goods, X and Y, where X is measured on the horizontal axis and Y is measured on the vertical axis.All else constant, a decrease in the price of X will cause the consumer's budget constraint to:

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

If an increase in price causes total revenue to decrease, we can conclude that demand is price elastic.

The total revenue from the sale of a good or service is calculated by multiplying the price paid by the number of units sold.

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.

Assume that when the price of good X is $7, quantity demanded is 25.When price is increased to $9, quantity demanded falls to 20.Based on this information, over the range in question demand is elastic.

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