Question 1

Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?

Accepted Answer

A) The demand facing individual firms tend to be more price-elastic than those for the entire industry. 
B) The elasticity of demand for a firm and for an industry is the same. 
C) The demand facing individual firms tend to be less price-elastic than those for the entire industry. 
D) The income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by an industry. 
A) The demand facing individual firms tend to be more price-elastic than those for the entire industry. 
B) The elasticity of demand for a firm and for an industry is the same. 
C) The demand facing individual firms tend to be less price-elastic than those for the entire industry. 
D) The income elasticity of demand faced by a firm is higher than the income elasticity of demand faced by an industry. A

Question 2

The omitted-variable problem in statistical analysis occurs when

Accepted Answer

A) excluded variables are correlated with explanatory variables that are included in the analysis. 
B) the demand for the product has not been stable over time. 
C) the price of the product has been relatively unstable over time. 
D) there is no uniform result because the accounted variables are not affected by changes in other variables. 
A) excluded variables are correlated with explanatory variables that are included in the analysis. 
B) the demand for the product has not been stable over time. 
C) the price of the product has been relatively unstable over time. 
D) there is no uniform result because the accounted variables are not affected by changes in other variables. A

Question 3

Analyze the demand function for a dinner at FancyFoods,a restaurant,given the four changes listed below:
(a)The restaurant down the street,Gourmet Meals,features a two-for-one meal special.
(b)The opera provides a coupon offering a 15 percent discount at FancyFoods with each ticket for the 6:00 p.m.show.
(c)Always Round Tire runs a special on tires; a 30 percent reduction in price if you buy four tires.
(d)The main employer in town provides a large increase in salaries for white-collar workers.

Accepted Answer

(a)A reduction in prices for substitute products will decrease the demand for FancyFoods.This will reduce the quantity of food demanded and the price of food at FancyFoods.
(b)The coupon represents a lower price of food at this restaurant and not a shift in the demand curve for FancyFoods.The demand function is unchanged.In response to a lower price of food,consumers will increase the quantity of food they demand from FancyFoods.
(c)Tires are neither complements nor substitutes for restaurant meals.A change in the price of tires will have no effect on the demand function for dinner at FancyFoods.
(d)This increase in income will shift the demand for dinners at FancyFoods to the right.This increase in demand will increase the volume of meals sold and the price of meals.

Question 4

Assume D1 represents the current demand curve for skis.Which of the following would most likely cause D1 to shift to D2?

Accepted Answer

A) An increase in the price of snowboards 
B) A decrease in the price snowboards 
C) A decrease in the price of skis 
D) An increase in the price of skis 
A) An increase in the price of snowboards 
B) A decrease in the price snowboards 
C) A decrease in the price of skis 
D) An increase in the price of skis

Question 5

Assume that several firms compete in the market for cellular phones and that the price elasticity for this industry is equal to 0.75.Based on this information,would you advise a firm in this industry to increase its price? If so,what is the percentage loss in total sales this firm should expect to experience?

Accepted Answer

A) Definitely yes.Total revenues would increase as sales would decrease by only .75 percent for each 1 percent increase in price. 
B) Not enough information is provided to make a sound decision.For the same reason,it is not possible to predict what the loss in sales for one firm would be. 
C) Definitely no.Each 1 percent increase in price would result in 7.5 percent reduction in total sales,negatively affecting total revenues. 
D) Definitely no.Each 1 percent increase in price would result in 7.5 percent reduction in total sales,affecting total revenues positively. 
A) Definitely yes.Total revenues would increase as sales would decrease by only .75 percent for each 1 percent increase in price. 
B) Not enough information is provided to make a sound decision.For the same reason,it is not possible to predict what the loss in sales for one firm would be. 
C) Definitely no.Each 1 percent increase in price would result in 7.5 percent reduction in total sales,negatively affecting total revenues. 
D) Definitely no.Each 1 percent increase in price would result in 7.5 percent reduction in total sales,affecting total revenues positively.

Question 6

Sales of shampoo by CleanHair,Inc.,have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor.Assuming that everything else is being held constant,we can infer that

Accepted Answer

A) the cross-price ARC-elasticity (midpoints formula)between the two products is -2. 
B) the cross-price ARC-elasticity (midpoints formula)between the two products is -½. 
C) the cross-price ARC-elasticity (midpoints formula)between the two products is ½. 
D) the cross-price ARC-elasticity (midpoints formula)between the two products is 2. 
A) the cross-price ARC-elasticity (midpoints formula)between the two products is -2. 
B) the cross-price ARC-elasticity (midpoints formula)between the two products is -½. 
C) the cross-price ARC-elasticity (midpoints formula)between the two products is ½. 
D) the cross-price ARC-elasticity (midpoints formula)between the two products is 2.

Question 7

FarAwayDrive Inc.has recently increased the price of its golf balls from $40 to $6.In response to this increase in price,sales decreased from 2,200 to 1,800 units.If no other information concerning the demand is available,which of the following is true about the sensitivity of demand (using the ARC or midpoints formula)for FarAwayDrive's golf balls?

Accepted Answer

A) The ARC-elasticity (midpoints formula)of demand is 2.0. 
B) The ARC-elasticity (midpoints formula)of demand is ½ or .50. 
C) The ARC-elasticity (midpoints formula)of demand is 2/3 or .667. 
D) The ARC-elasticity (midpoints formula)of demand is 4/11 or .364. 
A) The ARC-elasticity (midpoints formula)of demand is 2.0. 
B) The ARC-elasticity (midpoints formula)of demand is ½ or .50. 
C) The ARC-elasticity (midpoints formula)of demand is 2/3 or .667. 
D) The ARC-elasticity (midpoints formula)of demand is 4/11 or .364.

Question 8

The law of demand states the basic price/quantity relationship of consumption incentives.What does the concept of "price elasticity" add to that knowledge?

Accepted Answer

Price elasticity measures the

Question 9

The identification problem in using regression analysis to estimate a demand curve emerges when

Accepted Answer

A) factors affecting the demand for the product are highly correlated. 
B) the demand for the product has not been stable over time. 
C) the demand for the product has been relatively stable over time. 
D) the supply of the product has been relatively unstable over time. 
A) factors affecting the demand for the product are highly correlated. 
B) the demand for the product has not been stable over time. 
C) the demand for the product has been relatively stable over time. 
D) the supply of the product has been relatively unstable over time.

Question 10

The shape of a perfectly inelastic demand curve is

Accepted Answer

A) horizontal,Ed = ∞. 
B) horizontal,Ed = 0. 
C) horizontal,Ed = -1. 
D) vertical,Ed = 0. 
A) horizontal,Ed = ∞. 
B) horizontal,Ed = 0. 
C) horizontal,Ed = -1. 
D) vertical,Ed = 0.

Question 11

Suppose that the current market price of VCRs is $300,that the average consumer disposable income is $30,000,and that the price of DVDs (a substitute for VCRs)is $500.Under these conditions annual U.S.demand for VCRs is 5 million per year.Statistical studies have shown that for VCRs the own-price elasticity of demand is -1.3.The income elasticity of demand for VCRs is 1.7.The cross-price elasticity of demand for VCRs with respect to DVDs is 0.8.Use this information to predict the annual number of VCRs sold under the following conditions:
(1)Increasing competition from Asia causes VCR prices to fall to $270 with income and the price of DVDs remaining unchanged.
(2)Income tax reductions raise average disposable personal income to $31,500 with prices unchanged.
(3)An inventor in Menlo Park invents a cheaper way to produce DVDs,reducing the price of a DVD to $400,with the price of VCRs and income unchanged.
(4)All of the events described in parts 1−3 occur simultaneously.

Accepted Answer

(1)The formula for the own-price elastic

Question 12

Which of the following is true of the demand curves shown below?

Accepted Answer

A) All of them have constant price elasticity. 
B) None of them have constant price elasticity. 
C) Curves (1)and (3)have constant price elasticity. 
D) Curves (2)and (3)have constant price elasticity. 
A) All of them have constant price elasticity. 
B) None of them have constant price elasticity. 
C) Curves (1)and (3)have constant price elasticity. 
D) Curves (2)and (3)have constant price elasticity.

Question 13

The manager of Viking Sports finds that the price elasticity of baseball bats is −0.77.He wants to hold a sale to get rid of his inventory.What will you advise him?

Accepted Answer

A price elasticity of −0.77 suggests tha

Question 14

Assume Pyrotex Inc.estimates the demand for its fireworks to be linear.If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5,which of the following statements is true?

Accepted Answer

A) Pyrotex will increase its revenues by decreasing the price of fireworks. 
B) Pyrotex will increase its revenues by increasing the price of fireworks. 
C) Pyrotex cannot increase its revenues by changing the price of fireworks. 
D) Not enough information is provided to determine whether or not Pyrotex is currently maximizing its revenues. 
A) Pyrotex will increase its revenues by decreasing the price of fireworks. 
B) Pyrotex will increase its revenues by increasing the price of fireworks. 
C) Pyrotex cannot increase its revenues by changing the price of fireworks. 
D) Not enough information is provided to determine whether or not Pyrotex is currently maximizing its revenues.

Question 15

Edt = - 5.This means that if

Accepted Answer

A) Pt increases by 5 percent,then Qdt will decrease by 1 percent. 
B) Qdt increases by 5 percent,Pt will decrease by 1 percent. 
C) Pt increases by 1 percent,Qdt will decrease by 5 percent. 
D) Pt decreases by $1,Qdt will decrease by 5 units. 
A) Pt increases by 5 percent,then Qdt will decrease by 1 percent. 
B) Qdt increases by 5 percent,Pt will decrease by 1 percent. 
C) Pt increases by 1 percent,Qdt will decrease by 5 percent. 
D) Pt decreases by $1,Qdt will decrease by 5 units.

Question 16

Computer equipment is believed to be a normal good.This means that

Accepted Answer

A) the quantity of computer equipment consumed decreases as income increases. 
B) the income elasticity of demand for computer equipment is negative. 
C) the quantity of computer equipment increases as income increases. 
D) the quantity of computer equipment increases as income decreases. 
A) the quantity of computer equipment consumed decreases as income increases. 
B) the income elasticity of demand for computer equipment is negative. 
C) the quantity of computer equipment increases as income increases. 
D) the quantity of computer equipment increases as income decreases.

Question 17

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I.If P = $25 and I = $1,000 currently,then

Accepted Answer

A) skin care products are normal goods. 
B) the elasticity of demand is equal to 11. 
C) skin care products are inferior goods. 
D) the elasticity of demand is equal to 10. 
A) skin care products are normal goods. 
B) the elasticity of demand is equal to 11. 
C) skin care products are inferior goods. 
D) the elasticity of demand is equal to 10.

Question 18

The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product.

Accepted Answer

A) lower than 
B) equal to 
C) higher than 
D) not comparable to 
A) lower than 
B) equal to 
C) higher than 
D) not comparable to

Question 19

Assume SeatComfy Inc.estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10PA - 15 PT,where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers.Which of the following is true?

Accepted Answer

A) SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements,while SeatComfy's and competitors' chairs are substitutes.SeatComfy's sales decrease by 250 units for each $10 increase in their own price. 
B) SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes,while SeatComfy's sales are not affected by the pricing decisions of table producers.SeatComfy's sales increase by 50 percent if the price decreases by $2. 
C) SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements,while SeatComfy's and competitors' chairs are substitutes.SeatComfy's sales decrease by 25 units as price increases by $1. 
D) SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements,while SeatComfy's and competitors' chairs are substitutes.SeatComfy's sales decrease by 250 units as price increases by $1. 
A) SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements,while SeatComfy's and competitors' chairs are substitutes.SeatComfy's sales decrease by 250 units for each $10 increase in their own price. 
B) SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes,while SeatComfy's sales are not affected by the pricing decisions of table producers.SeatComfy's sales increase by 50 percent if the price decreases by $2. 
C) SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements,while SeatComfy's and competitors' chairs are substitutes.SeatComfy's sales decrease by 25 units as price increases by $1. 
D) SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements,while SeatComfy's and competitors' chairs are substitutes.SeatComfy's sales decrease by 250 units as price increases by $1.

Question 20

Which of the following is a limitation of demand estimation through price experimentation?

Accepted Answer

A) Consumers have incentives to be less truthful in their reaction to price changes,which will provide flawed data. 
B) Direct market tests like price experimentation are controlled experiments and will not reflect the effects of other changes in the market. 
C) This approach is comparatively >more expensive than the other approaches of demand estimation. 
D) There is no uniform result as the demand will differ,depending on whether customers anticipate that a price change is permanent or temporary. 
A) Consumers have incentives to be less truthful in their reaction to price changes,which will provide flawed data. 
B) Direct market tests like price experimentation are controlled experiments and will not reflect the effects of other changes in the market. 
C) This approach is comparatively >more expensive than the other approaches of demand estimation. 
D) There is no uniform result as the demand will differ,depending on whether customers anticipate that a price change is permanent or temporary.

Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?

The omitted-variable problem in statistical analysis occurs when

Assume D₁ represents the current demand curve for skis.Which of the following would most likely cause D₁ to shift to D₂?

Sales of shampoo by CleanHair,Inc.,have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor.Assuming that everything else is being held constant,we can infer that

The law of demand states the basic price/quantity relationship of consumption incentives.What does the concept of "price elasticity" add to that knowledge?

The identification problem in using regression analysis to estimate a demand curve emerges when

The shape of a perfectly inelastic demand curve is

Which of the following is true of the demand curves shown below?

The manager of Viking Sports finds that the price elasticity of baseball bats is −0.77.He wants to hold a sale to get rid of his inventory.What will you advise him?

Assume Pyrotex Inc.estimates the demand for its fireworks to be linear.If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5,which of the following statements is true?

Ed_t= - 5.This means that if

Computer equipment is believed to be a normal good.This means that

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I.If P = $25 and I = $1,000 currently,then

The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product.

Assume SeatComfy Inc.estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10P_A - 15 P_T,where P = the price of SeatComfy's chairs; P_A = average price of competitors' chairs; P_T = price of tables; and I = average income of SeatComfy's customers.Which of the following is true?

Which of the following is a limitation of demand estimation through price experimentation?

Introduction

Economists View of Behavior

Exchange and Markets

Production and Cost

Market Structure

Pricing With Market Power

Economics of Strategy: Creating and Capturing Value

Economics of Strategy: Game Theory

Incentive Conflicts and Contracts

Organizational Architecture

Decision Rights: the Level of Empowerment

Decision Rights: Bundling Tasks Into Jobs and Subunits

Attracting and Retaining Qualified Employees

Incentive Compensation

Individual Performance Evaluation

Divisional Performance Evaluation

Corporate Governance

Vertical Integration and Outsourcing

Leadership: Motivating Change Within Organizations

Understanding the Business Environment: the Economics of Regulation

Ethics and Organizational Architecture

Organizational Architecture and the Process of Management Innovation

Filters

Exam 4: Demand

Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?

The omitted-variable problem in statistical analysis occurs when

Assume D1 represents the current demand curve for skis.Which of the following would most likely cause D1 to shift to D2?

Sales of shampoo by CleanHair,Inc.,have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor.Assuming that everything else is being held constant,we can infer that

The law of demand states the basic price/quantity relationship of consumption incentives.What does the concept of "price elasticity" add to that knowledge?

The identification problem in using regression analysis to estimate a demand curve emerges when

The shape of a perfectly inelastic demand curve is

Which of the following is true of the demand curves shown below?

The manager of Viking Sports finds that the price elasticity of baseball bats is −0.77.He wants to hold a sale to get rid of his inventory.What will you advise him?

Assume Pyrotex Inc.estimates the demand for its fireworks to be linear.If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5,which of the following statements is true?

Edt = - 5.This means that if

Computer equipment is believed to be a normal good.This means that

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I.If P = $25 and I = $1,000 currently,then

The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product.

Assume SeatComfy Inc.estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10PA - 15 PT,where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers.Which of the following is true?

Which of the following is a limitation of demand estimation through price experimentation?

Introduction

Economists View of Behavior

Exchange and Markets

Production and Cost

Market Structure

Pricing With Market Power

Economics of Strategy: Creating and Capturing Value

Economics of Strategy: Game Theory

Incentive Conflicts and Contracts

Organizational Architecture

Decision Rights: the Level of Empowerment

Decision Rights: Bundling Tasks Into Jobs and Subunits

Attracting and Retaining Qualified Employees

Incentive Compensation

Individual Performance Evaluation

Divisional Performance Evaluation

Corporate Governance

Vertical Integration and Outsourcing

Leadership: Motivating Change Within Organizations

Understanding the Business Environment: the Economics of Regulation

Ethics and Organizational Architecture

Organizational Architecture and the Process of Management Innovation

Filters

Assume D₁ represents the current demand curve for skis.Which of the following would most likely cause D₁ to shift to D₂?

Ed_t= - 5.This means that if

Assume SeatComfy Inc.estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10P_A - 15 P_T,where P = the price of SeatComfy's chairs; P_A = average price of competitors' chairs; P_T = price of tables; and I = average income of SeatComfy's customers.Which of the following is true?