Question 1

Summarize the relationship between elasticity, price changes, and changes in total revenue.

Accepted Answer

When demand is inelastic, total revenue

Question 2

A decrease in price will result in an increase in total revenue if:

Accepted Answer

A) the percentage change in quantity demanded is less than the percentage change in price. 
B) the percentage change in quantity demanded is greater than the percentage change in price. 
C) demand is inelastic. 
D) the consumer is operating along a linear demand curve at a point at which the price is very low and the quantity demanded is very high. 
A) the percentage change in quantity demanded is less than the percentage change in price. 
B) the percentage change in quantity demanded is greater than the percentage change in price. 
C) demand is inelastic. 
D) the consumer is operating along a linear demand curve at a point at which the price is very low and the quantity demanded is very high.

Question 3

Observations of consumer behavior suggest that when the price of gasoline rose above $3.50 per gallon, consumer demand for gas became considerably more price elastic.

Accepted Answer

A) True 
 B)False

Question 4

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 5

Information on the price elasticity of demand is particularly important to managerial decision making because:

Accepted Answer

A) the higher the price elasticity of demand for a product is, the more profitable it will be to produce more of it. 
B) depending on the elasticity coefficient, decision makers will immediately know if a price change will cause profits to increase or decrease. 
C) it allows one to predict how total revenue will respond, i.e., increase or decrease, to a change in price. 
D) as the price elasticity coefficient approaches one, profits will increase. 
A) the higher the price elasticity of demand for a product is, the more profitable it will be to produce more of it. 
B) depending on the elasticity coefficient, decision makers will immediately know if a price change will cause profits to increase or decrease. 
C) it allows one to predict how total revenue will respond, i.e., increase or decrease, to a change in price. 
D) as the price elasticity coefficient approaches one, profits will increase.

Question 6

At the point on the demand curve at which marginal revenue = 0, the absolute value of the coefficient of the price elasticity of demand is:

Accepted Answer

A) > 1. B) = 1. C) < 1. D) = 0. A) > 1. B) = 1. C) < 1. D) = 0.

Question 7

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 8

The price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price.

Accepted Answer

A) True 
 B)False

Question 9

Calculate the arc price elasticity of demand for wheat in the two situations below:
   
Can you account for the difference in elasticities?

Accepted Answer

Elasticity of demand for wheat in the wh

Question 10

Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.

Accepted Answer

A) True 
 B)False

Question 11

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 (in absolute values). 
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 (in absolute values). 
D) the demand function is perfectly elastic.

Question 12

As we move down a particular indifference curve, if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

Accepted Answer

A) perfect substitutes. 
B) perfect complements. 
C) totally unrelated. 
D) both inferior goods. 
A) perfect substitutes. 
B) perfect complements. 
C) totally unrelated. 
D) both inferior goods.

Question 13

When a consumer moves from a lower to a higher indifference curve, the marginal rate of substitution automatically increases.

Accepted Answer

A) True 
 B)False

Question 14

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.Over this range, the arc elasticity of demand is 1.182.

Accepted Answer

A) True 
 B)False

Question 15

While the demand for beer is relatively price inelastic, the price elasticity of demand for a particular brand is relatively high, due in large part to availability of close substitutes.

Accepted Answer

A) True 
 B)False

Question 16

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

Accepted Answer

A) True 
 B)False

Question 17

Hot dogs and hot dog buns would be expected to have:

Accepted Answer

A) positive income elasticities of demand with respect to each other. 
B) negative income elasticities of demand with respect to each other. 
C) a positive cross-price elasticity of demand. 
D) a negative cross-price elasticity of demand. 
A) positive income elasticities of demand with respect to each other. 
B) negative income elasticities of demand with respect to each other. 
C) a positive cross-price elasticity of demand. 
D) a negative cross-price elasticity of demand.

Question 18

When demand is perfectly inelastic with respect to price, the demand curve is horizontal.

Accepted Answer

A) True 
 B)False

Question 19

Illustrate graphically the effect the credit market crisis in the United States in 2008 had in the market for existing single-family homes.Assuming the demand for existing single-family homes is relatively inelastic, what is likely to happen to the total revenues of home sellers as a result of the credit market crisis?

Accepted Answer

The credit market crisis resulted in a l

Question 20

Assume the income elasticity of a good has been calculated to be +0.83.Based on this information, we can infer that the good is:

Accepted Answer

A) a normal good and a luxury. 
B) an inferior good and a necessity. 
C) a normal good and a necessity. 
D) an inferior good and a luxury. 
A) a normal good and a luxury. 
B) an inferior good and a necessity. 
C) a normal good and a necessity. 
D) an inferior good and a luxury.

Summarize the relationship between elasticity, price changes, and changes in total revenue.

A decrease in price will result in an increase in total revenue if:

Observations of consumer behavior suggest that when the price of gasoline rose above $3.50 per gallon, consumer demand for gas became considerably more price elastic.

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?

Information on the price elasticity of demand is particularly important to managerial decision making because:

At the point on the demand curve at which marginal revenue = 0, the absolute value of the coefficient of the price elasticity of demand 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?

The price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price.

Calculate the arc price elasticity of demand for wheat in the two situations below: Can you account for the difference in elasticities?

Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.

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

As we move down a particular indifference curve, if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

When a consumer moves from a lower to a higher indifference curve, the marginal rate of substitution automatically increases.

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.Over this range, the arc elasticity of demand is 1.182.

While the demand for beer is relatively price inelastic, the price elasticity of demand for a particular brand is relatively high, due in large part to availability of close substitutes.

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

Hot dogs and hot dog buns would be expected to have:

When demand is perfectly inelastic with respect to price, the demand curve is horizontal.

Assume the income elasticity of a good has been calculated to be +0.83.Based on this information, we can infer that the good is:

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

Summarize the relationship between elasticity, price changes, and changes in total revenue.

A decrease in price will result in an increase in total revenue if:

Observations of consumer behavior suggest that when the price of gasoline rose above $3.50 per gallon, consumer demand for gas became considerably more price elastic.

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?

Information on the price elasticity of demand is particularly important to managerial decision making because:

At the point on the demand curve at which marginal revenue = 0, the absolute value of the coefficient of the price elasticity of demand 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?

The price elasticity of demand is measured as the percentage change in quantity demanded divided by the percentage change in price.

Calculate the arc price elasticity of demand for wheat in the two situations below: Can you account for the difference in elasticities?

Studies strongly suggest that advertising strategies are generally much more effective than pricing strategies as a means to increase market share.

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

As we move down a particular indifference curve, if the "marginal rate of substitution" between the two goods does not change we can conclude that the two goods are:

When a consumer moves from a lower to a higher indifference curve, the marginal rate of substitution automatically increases.

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.Over this range, the arc elasticity of demand is 1.182.

While the demand for beer is relatively price inelastic, the price elasticity of demand for a particular brand is relatively high, due in large part to availability of close substitutes.

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

Hot dogs and hot dog buns would be expected to have:

When demand is perfectly inelastic with respect to price, the demand curve is horizontal.

Assume the income elasticity of a good has been calculated to be +0.83.Based on this information, we can infer that the good is:

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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