Question 1

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will:

Accepted Answer

A) tend to become more price elastic. 
B) tend to become more price inelastic. 
C) tend to become closer to unit elastic. 
D) tend toward being perfectly elastic. 
A) tend to become more price elastic. 
B) tend to become more price inelastic. 
C) tend to become closer to unit elastic. 
D) tend toward being perfectly elastic.

Question 2

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 3

Assume a consumer purchases two goods: X and Y.All else constant, an increase in the price of X would cause the total utility the consumer can obtain with her available income to decrease.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Based on empirical evidence, the "farm problem" that has confronted U.S.policymakers for many years is attributable, in large part, to the relatively inelastic demand for many agricultural products.

Accepted Answer

A) True 
 B)False

Question 6

In which of the following cases would the price elasticity of demand be expected to increase?

Accepted Answer

A) The number of close substitutes for the good increases. 
B) The time period under consideration decreases. 
C) The cost of the good relative to total income decreases. 
D) The supply of the good increases. 
A) The number of close substitutes for the good increases. 
B) The time period under consideration decreases. 
C) The cost of the good relative to total income decreases. 
D) The supply of the good increases.

Question 7

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

Question 8

When demand is inelastic and price decreases:

Accepted Answer

A) the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. 
B) the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases. 
C) the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged. 
D) quantity demanded and total revenue fall to zero. 
A) the effect of the decrease in price on total revenue dominates the effect of the increase in quantity demanded on total revenue; overall total revenue declines. 
B) the effect of the increase in quantity demanded on total revenue dominates the effect of the decrease in price on total revenue; overall total revenue increases. 
C) the effects of the decrease in price on total revenue and the corresponding increase in quantity demanded on total revenue perfectly offset one another; overall total revenue remains unchanged. 
D) quantity demanded and total revenue fall to zero.

Question 9

Marginal revenue equals 0 when:

Accepted Answer

A) total revenue is increasing. 
B) total revenue is at its maximum. 
C) total revenue is decreasing. 
D) none of the above; marginal revenue is always positive. 
A) total revenue is increasing. 
B) total revenue is at its maximum. 
C) total revenue is decreasing. 
D) none of the above; marginal revenue is always positive.

Question 10

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 i

Question 11

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 12

The "marginal rate of substitution" between two goods is measured by:

Accepted Answer

A) the ratio of the market prices of the two goods. 
B) the number of units of a good consumed divided by the market price of the other good. 
C) the number of units of one good a consumer would give up to consume one more unit of another good, while holding total utility constant. 
D) the consumer's budget constraint divided by the price of each good. 
A) the ratio of the market prices of the two goods. 
B) the number of units of a good consumed divided by the market price of the other good. 
C) the number of units of one good a consumer would give up to consume one more unit of another good, while holding total utility constant. 
D) the consumer's budget constraint divided by the price of each good.

Question 13

When the percentage change in price is greater than the corresponding change in quantity demanded, demand is inelastic.

Accepted Answer

A) True 
 B)False

Question 14

Assume that, over time, engineers develop new residential furnaces that can run on different types of fuels, e.g., natural gas, electricity, propane, and fuel oil, simply by flipping a switch on the furnace.How would this technological change affect the price elasticity of demand for natural gas? Why?

Accepted Answer

The price elasticity of demand

Question 15

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 16

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 17

Assuming demand is inelastic, if a firm wants to increase its total revenue, it should raise price.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?

Accepted Answer

A) Senior citizens tend to have relatively more elastic demands for restaurant meals than other consumer groups. 
B) Senior citizens tend to have relatively more inelastic demands for restaurant meals. than other consumer groups. 
C) Senior citizens are not very sensitive to changes in prices. 
D) Senior citizens are easily fooled by "come-ons" and are therefore frequently victims of price discrimination. 
A) Senior citizens tend to have relatively more elastic demands for restaurant meals than other consumer groups. 
B) Senior citizens tend to have relatively more inelastic demands for restaurant meals. than other consumer groups. 
C) Senior citizens are not very sensitive to changes in prices. 
D) Senior citizens are easily fooled by "come-ons" and are therefore frequently victims of price discrimination.

Question 19

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

Accepted Answer

A) Quantity demanded will be relatively sensitive to the change in price. 
B) The percentage change in quantity demanded will be quite small relative to the percentage change in price. 
C) The percentage change in price will be quite large relative to the percentage change in quantity demanded. 
D) Demand will tend to be unitary elastic as it is for most goods in the long run. 
A) Quantity demanded will be relatively sensitive to the change in price. 
B) The percentage change in quantity demanded will be quite small relative to the percentage change in price. 
C) The percentage change in price will be quite large relative to the percentage change in quantity demanded. 
D) Demand will tend to be unitary elastic as it is for most goods in the long run.

Question 20

The price elasticity of demand for pleasure travel (-1.9)and business travel (-0.8)suggests that air travel for pleasure is a luxury and air travel for business is a necessity.

Accepted Answer

A) True 
 B)False

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will:

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 a consumer purchases two goods: X and Y.All else constant, an increase in the price of X would cause the total utility the consumer can obtain with her available income to decrease.

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:

Based on empirical evidence, the "farm problem" that has confronted U.S.policymakers for many years is attributable, in large part, to the relatively inelastic demand for many agricultural products.

In which of the following cases would the price elasticity of demand be expected to increase?

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.

When demand is inelastic and price decreases:

Marginal revenue equals 0 when:

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

The "marginal rate of substitution" between two goods is measured by:

When the percentage change in price is greater than the corresponding change in quantity demanded, demand is inelastic.

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

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.

Assuming demand is inelastic, if a firm wants to increase its total revenue, it should raise price.

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

The price elasticity of demand for pleasure travel (-1.9)and business travel (-0.8)suggests that air travel for pleasure is a luxury and air travel for business is a necessity.

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

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will:

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 a consumer purchases two goods: X and Y.All else constant, an increase in the price of X would cause the total utility the consumer can obtain with her available income to decrease.

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:

Based on empirical evidence, the "farm problem" that has confronted U.S.policymakers for many years is attributable, in large part, to the relatively inelastic demand for many agricultural products.

In which of the following cases would the price elasticity of demand be expected to increase?

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.

When demand is inelastic and price decreases:

Marginal revenue equals 0 when:

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

The "marginal rate of substitution" between two goods is measured by:

When the percentage change in price is greater than the corresponding change in quantity demanded, demand is inelastic.

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

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.

Assuming demand is inelastic, if a firm wants to increase its total revenue, it should raise price.

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

The price elasticity of demand for pleasure travel (-1.9)and business travel (-0.8)suggests that air travel for pleasure is a luxury and air travel for business is a necessity.

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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