Question 1

How might a market research analyst use measures of elasticity-price,cross,and income-in her work? Explain.

Accepted Answer

A market researcher is interested in determining the effects of changes on demand for a product or industry.Each measure of elasticity can be critical here.Price elasticity helps predict changes in unit output for a price change.Income elasticity helps predict changes in demand as buyer income changes,perhaps over a business cycle.Cross elasticity helps predict the impact of a change in prices of competitors in the industry,competing products,and other products that affect demand for a particular product.Market researchers rely upon all of these in defining markets,defining boundaries of markets,and analyzing effects from competitors.

Question 2

A straight-line demand curve has the same elasticity throughout its length.

Accepted Answer

A) True 
 B)False  False

Question 3

Big Alice Ice Cream Parlor reduced its price of an ice cream cone from $1 to 90 cents.Sales consequently increased from 1,000 cones per week to 1,050.The approximate price elasticity is

Accepted Answer

A) 0.20. 
B) 0.46. 
C) 2.16. 
D) 5.00. 
A) 0.20. 
B) 0.46. 
C) 2.16. 
D) 5.00. B

Question 4

Along a perfectly elastic demand curve,

Accepted Answer

A) the slope is always zero. 
B) the price elasticity of demand is 1. 
C) consumer purchases will not respond at all to a change in price. 
D) All of the above are true. 
A) the slope is always zero. 
B) the price elasticity of demand is 1. 
C) consumer purchases will not respond at all to a change in price. 
D) All of the above are true.

Question 5

Elasticity of demand is likely to be higher for less-expensive goods,other things being equal.

Accepted Answer

A) True 
 B)False

Question 6

When OPEC raises the price of petroleum,American expenditures on oil imports increase,suggesting that

Accepted Answer

A) the United States' elasticity of demand for imported oil is greater than one. 
B) the United States' elasticity of demand for imported oil is less than one. 
C) imported oil and domestically produced oil are complementary goods. 
D) the short-run elasticity of demand for oil is greater than the long-run elasticity. 
A) the United States' elasticity of demand for imported oil is greater than one. 
B) the United States' elasticity of demand for imported oil is less than one. 
C) imported oil and domestically produced oil are complementary goods. 
D) the short-run elasticity of demand for oil is greater than the long-run elasticity.

Question 7

Historical demand curves are always suspect because their demand curves are likely to have shifted over time.

Accepted Answer

A) True 
 B)False

Question 8

The price elasticity of a horizontal demand curve is always

Accepted Answer

A) infinitely large. 
B) zero. 
C) one. 
D) increasing as price increases. 
A) infinitely large. 
B) zero. 
C) one. 
D) increasing as price increases.

Question 9

Figure 6-6
  
-An article in the Wall Street Journal reports that "most cable TV operators are aware that cable is price sensitive,and there comes a point where people won't pay the price." Which demand curve in Figure 6-6 best illustrates this situation?

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 10

Necessities such as food and shelter have inelastic demand.

Accepted Answer

A) True 
 B)False

Question 11

Figure 6-2
  
-In Figure 6-2,the price elasticity of demand (dropping all minus signs)is ____ between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is ____.

Accepted Answer

A) smaller; smaller 
B) smaller; greater 
C) greater; smaller 
D) greater; greater 
A) smaller; smaller 
B) smaller; greater 
C) greater; smaller 
D) greater; greater

Question 12

Elasticity of demand is calculated using percentage changes in both price and quantity.

Accepted Answer

A) True 
 B)False

Question 13

Julia knows the price elasticity of movie rentals is 3.She knows,therefore,that if she raises her price from $2 to $2.50,her rentals will drop by approximately

Accepted Answer

A) 150 percent. 
B) 100 percent. 
C) 75 percent. 
D) 33 percent. 
A) 150 percent. 
B) 100 percent. 
C) 75 percent. 
D) 33 percent.

Question 14

According to the estimates of a Harvard economist,the demand for cocaine is unit elastic.This means if the price of cocaine were to rise by 10 percent,(i)quantity consumed would fall 10 percent and (ii)dealer income from the sale of cocaine would fall 10 percent.Which of these two statements are correct?

Accepted Answer

A) i and ii 
B) i not ii 
C) ii not i 
D) neither i nor ii 
A) i and ii 
B) i not ii 
C) ii not i 
D) neither i nor ii

Question 15

The local symphony recently raised its price for tickets to their summer concerts in the park.At the end of the summer season,the symphony was surprised to see that total revenue had actually decreased.The reason was that the elasticity of demand for tickets was

Accepted Answer

A) unit elastic. 
B) inelastic. 
C) elastic. 
D) Not enough information is given. 
A) unit elastic. 
B) inelastic. 
C) elastic. 
D) Not enough information is given.

Question 16

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami.The elasticity of demand for rice is

Accepted Answer

A) greater in Miami than in Gainesville, even taking into account the population difference. 
B) greater in Gainesville than in Miami in spite of the population difference. 
C) equal in Gainesville and Miami regardless of the population difference. 
D) impossible to compare because of the population difference. 
A) greater in Miami than in Gainesville, even taking into account the population difference. 
B) greater in Gainesville than in Miami in spite of the population difference. 
C) equal in Gainesville and Miami regardless of the population difference. 
D) impossible to compare because of the population difference.

Question 17

A unit-elastic demand curve never touches or crosses either of the axes.Why?

Accepted Answer

When demand is unit-elastic,total expend

Question 18

A rise in price will always result in an increase in the total amount consumers spend on a product.

Accepted Answer

A) True 
 B)False

Question 19

If demand is inelastic,a drop in price will raise total expenditure.

Accepted Answer

A) True 
 B)False

Question 20

Figure 6-1
  
-In Figure 6-1,

Accepted Answer

A) D1 is more elastic than D2 below P2 and less elastic above P2. 
B) D1 is less elastic than D2 at all prices. 
C) D2 is less elastic than D1 at all prices. 
D) D2 is more elastic than D2 above P2 but less elastic below P2. 
A) D1 is more elastic than D2 below P2 and less elastic above P2. 
B) D1 is less elastic than D2 at all prices. 
C) D2 is less elastic than D1 at all prices. 
D) D2 is more elastic than D2 above P2 but less elastic below P2.

Exam 6: Demand and Elasticity

How might a market research analyst use measures of elasticity-price,cross,and income-in her work? Explain.

A straight-line demand curve has the same elasticity throughout its length.

Big Alice Ice Cream Parlor reduced its price of an ice cream cone from $1 to 90 cents.Sales consequently increased from 1,000 cones per week to 1,050.The approximate price elasticity is

Along a perfectly elastic demand curve,

Elasticity of demand is likely to be higher for less-expensive goods,other things being equal.

When OPEC raises the price of petroleum,American expenditures on oil imports increase,suggesting that

Historical demand curves are always suspect because their demand curves are likely to have shifted over time.

The price elasticity of a horizontal demand curve is always

Figure 6-6 -An article in the Wall Street Journal reports that "most cable TV operators are aware that cable is price sensitive,and there comes a point where people won't pay the price." Which demand curve in Figure 6-6 best illustrates this situation?

Necessities such as food and shelter have inelastic demand.

Figure 6-2 -In Figure 6-2,the price elasticity of demand (dropping all minus signs)is ____ between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is ____.

Elasticity of demand is calculated using percentage changes in both price and quantity.

Julia knows the price elasticity of movie rentals is 3.She knows,therefore,that if she raises her price from $2 to $2.50,her rentals will drop by approximately

The local symphony recently raised its price for tickets to their summer concerts in the park.At the end of the summer season,the symphony was surprised to see that total revenue had actually decreased.The reason was that the elasticity of demand for tickets was

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami.The elasticity of demand for rice is

A unit-elastic demand curve never touches or crosses either of the axes.Why?

A rise in price will always result in an increase in the total amount consumers spend on a product.

If demand is inelastic,a drop in price will raise total expenditure.

Figure 6-1 -In Figure 6-1,

What Is Economics

The Economy: Myth and Reality

The Fundamental Economic Problem: Scarcity and Choice

Supply and Demand: An Initial Look

Consumer Choice: Individual and Market Demand

Production,Inputs,and Cost: Building Blocks for Supply Analysis

Output,Price,and Profit: The Importance of Marginal Analysis

Securities: Business Finance,and the Economy: The Tail That Wags the Dog

The Firm and the Industry Under Perfect Competition

Monopoly

Between Competition and Monopoly

Limiting Market Power: Regulation and Antitrust

The Case for Free Markets I: the Price System

The Shortcomings of Free Markets

The Markets Prime Achievement: Innovation and Growth

Externalities, the Environment, and Natural Resources

Taxation and Resource Allocation

Pricing the Factors of Production

Labor and Entrepreneurship: The Human Inputs

Poverty, Inequality, and Discrimination

International Trade and Comparative Advantage

Filters

Figure 6-2 -In Figure 6-2,the price elasticity of demand (dropping all minus signs)is between P = 4 and P = 6 than between P = 10 and P = 12 because between the lower set of prices the percentage change in price is .