Question 1

The demand function in Table 3-1 is QXd = 100 - 2PX. Based on this information, compute the own price elasticity of demand when PX = $25 (point C).

Accepted Answer

A)  -1.09 
B)  -1 
C)  -0.50 
D)  -0.25 
A)  -1.09 
B)  -1 
C)  -0.50 
D)  -0.25

Question 2

If a price increase from $8 to $10 causes quantity demanded to fall from 500 to 400, what is the absolute value of the own price elasticity at a price of $10?

Accepted Answer

A)  0.80 
B)  1.25 
C)  1.00 
D)  0.75 
A)  0.80 
B)  1.25 
C)  1.00 
D)  0.75

Question 3

When the price of butter was "low," consumers spent $5 billion annually on its consumption. When the price doubled, consumer expenditures increased to $7 billion. Recently you read that this means that the demand curve for butter is upward sloping. Do you agree? Explain.

Accepted Answer

Disagree. Let P be the initial price and

Question 4

If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2 percent increase in the price of ketchup will lead to a:

Accepted Answer

A)  5 percent drop in quantity demanded of ketchup. 
B)  5 percent drop in quantity demanded of hamburgers. 
C)  5 percent increase in quantity demanded of ketchup. 
D)  5 percent increase in quantity demanded of hamburgers. 
A)  5 percent drop in quantity demanded of ketchup. 
B)  5 percent drop in quantity demanded of hamburgers. 
C)  5 percent increase in quantity demanded of ketchup. 
D)  5 percent increase in quantity demanded of hamburgers.

Question 5

Suppose the income elasticity for transportation is 1.8. Which of the following is an INCORRECT statement?

Accepted Answer

A)  Transportation is a normal good. 
B)  Expenditures on transportation grow more rapidly than income grows. 
C)  Expenditures on transportation will fall less rapidly than income falls. 
D)  Whenever the income increases by 1 percent, the expenditure on transportation increases by 1.8 percent. 
A)  Transportation is a normal good. 
B)  Expenditures on transportation grow more rapidly than income grows. 
C)  Expenditures on transportation will fall less rapidly than income falls. 
D)  Whenever the income increases by 1 percent, the expenditure on transportation increases by 1.8 percent.

Question 6

The cross-price elasticity of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will:

Accepted Answer

A)  fall by 2.0 percent. 
B)  rise by 2.0 percent. 
C)  fall by 20 percent. 
D)  rise by 20 percent. 
A)  fall by 2.0 percent. 
B)  rise by 2.0 percent. 
C)  fall by 20 percent. 
D)  rise by 20 percent.

Question 7

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

Accepted Answer

A)  2.5. 
B)  0.4. 
C)  2.0. 
D)  0.27. 
A)  2.5. 
B)  0.4. 
C)  2.0. 
D)  0.27.

Question 8

As the manager of a local hotel chain, you have hired an econometrician to estimate the demand for one of your hotels (H). The estimation has resulted in the following demand function: QH = 2,000 - PH - 1.5PC - 2.25PSE + 0.8POH + 0.01M, where PH is the price of a room at your hotel, PC is the price of concerts in your area, PSE is the price of sporting events in your area, POH is the average room price at other hotels in your area, and M is the average income in the United States. What would be the impact on your firm of:
a. A $500 increase in income?
b. A $10 reduction in the price charged by other hotels?
c. A $7 increase in the price of tickets to local sporting events?
d. A $5 increase in the price of concert tickets, accompanied by an $8 increase in income?

Accepted Answer

a. ΔQ_H = (0.01)ΔM = (0.01)(500) = 5. Thus

Question 9

The demand for Wanderlust Travel Services (X) is estimated to be Qx = 22,000 - 2.5Px + 4Py - 1M + 1.5Ax, where Ax represents the amount of advertising spent on X and the other variables have their usual interpretations. Suppose the price of good X is $450, good Y sells for $40, the company utilizes 3,000 units of advertising, and consumer income is $20,000.
a. Calculate the own price elasticity of demand at these values of prices, income, and advertising.
b. Is demand elastic, inelastic, or unitary elastic?
c. How will your answers to parts a and b change if the price of Y increases to $50?

Accepted Answer

a. Q_x = 22,000 - 2.5 (450) + 4(40) - 1(20

Question 10

The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, good X is:

Accepted Answer

A)  an inferior good. 
B)  a normal good. 
C)  a Giffen good. 
D)  a regular good. 
A)  an inferior good. 
B)  a normal good. 
C)  a Giffen good. 
D)  a regular good.

Question 11

When marginal revenue is positive, demand is:

Accepted Answer

A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  There is not sufficient information to classify the elasticity of demand. 
A)  elastic. 
B)  inelastic. 
C)  unit elastic. 
D)  There is not sufficient information to classify the elasticity of demand.

Question 12

When marginal revenue is positive for a linear (inverse) demand function, decreases in output will cause total revenues to:

Accepted Answer

A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  There is not sufficient information to answer the question. 
A)  increase. 
B)  decrease. 
C)  remain unchanged. 
D)  There is not sufficient information to answer the question.

Question 13

A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is -4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will:

Accepted Answer

A)  increase total revenues from X and Y by $520. 
B)  decrease total revenues from X and Y by $200. 
C)  leave total revenues from X and Y unchanged. 
D)  decrease total revenues for X and Y by $600. 
A)  increase total revenues from X and Y by $520. 
B)  decrease total revenues from X and Y by $200. 
C)  leave total revenues from X and Y unchanged. 
D)  decrease total revenues for X and Y by $600.

Question 14

When the own price elasticity of good X is -3.5, then total revenue can be increased by:

Accepted Answer

A)  increasing the price. 
B)  decreasing the quantity supplied. 
C)  decreasing the price. 
D)  neither increasing the price, decreasing the price, nor decreasing the quantity supplied. 
A)  increasing the price. 
B)  decreasing the quantity supplied. 
C)  decreasing the price. 
D)  neither increasing the price, decreasing the price, nor decreasing the quantity supplied.

Question 15

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. What is the own price elasticity of demand?

Accepted Answer

A)  -2.34 
B)  -0.78 
C)  -0.21 
D)  -1.21 
A)  -2.34 
B)  -0.78 
C)  -0.21 
D)  -1.21

Question 16

When the price of sugar was "low," consumers in the United States spent a total of $3 billion annually on its consumption. When the price doubled, consumer expenditures actually INCREASED to $4 billion annually. This indicates that:

Accepted Answer

A)  the demand for sugar is elastic. 
B)  the demand curve for sugar is upward sloping. 
C)  sugar is a Giffen good. 
D)  None of the statements is correct. 
A)  the demand for sugar is elastic. 
B)  the demand curve for sugar is upward sloping. 
C)  sugar is a Giffen good. 
D)  None of the statements is correct.

Question 17

The own price elasticity of demand for apples is -1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

Accepted Answer

A)  It will increase 5 percent. 
B)  It will fall 4.3 percent. 
C)  It will increase 4.2 percent. 
D)  It will increase 6 percent. 
A)  It will increase 5 percent. 
B)  It will fall 4.3 percent. 
C)  It will increase 4.2 percent. 
D)  It will increase 6 percent.

Question 18

Which of the following statements is INCORRECT?

Accepted Answer

A)  If a firm decreases the price of its product, its total revenue must decrease. 
B)  The own price elasticity of demand is constant at all points along a linear demand curve. 
C)  As the price of X falls and we move down an individual's demand curve for X, the money income of the individual also changes. 
D)  None of the statements is correct. 
A)  If a firm decreases the price of its product, its total revenue must decrease. 
B)  The own price elasticity of demand is constant at all points along a linear demand curve. 
C)  As the price of X falls and we move down an individual's demand curve for X, the money income of the individual also changes. 
D)  None of the statements is correct.

Question 19

The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the cross-price elasticity between goods X and Y is:

Accepted Answer

A)  0.008. 
B)  -0.08. 
C)  -0.8. 
D)  -8. 
A)  0.008. 
B)  -0.08. 
C)  -0.8. 
D)  -8.

Question 20

Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then the demand for good x is:

Accepted Answer

A)  inelastic. 
B)  unitary. 
C)  elastic. 
D)  perfectly elastic. 
A)  inelastic. 
B)  unitary. 
C)  elastic. 
D)  perfectly elastic.

The demand function in Table 3-1 is Q_X^d = 100 - 2P_X. Based on this information, compute the own price elasticity of demand when P_X = $25 (point C).

If a price increase from $8 to $10 causes quantity demanded to fall from 500 to 400, what is the absolute value of the own price elasticity at a price of $10?

When the price of butter was "low," consumers spent $5 billion annually on its consumption. When the price doubled, consumer expenditures increased to $7 billion. Recently you read that this means that the demand curve for butter is upward sloping. Do you agree? Explain.

If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2 percent increase in the price of ketchup will lead to a:

Suppose the income elasticity for transportation is 1.8. Which of the following is an INCORRECT statement?

The cross-price elasticity of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will:

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

When marginal revenue is positive, demand is:

When marginal revenue is positive for a linear (inverse) demand function, decreases in output will cause total revenues to:

A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is -4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will:

When the own price elasticity of good X is -3.5, then total revenue can be increased by:

Suppose Q_x^d = 10,000 - 2 P_x + 3 P_y - 4.5M, where P_x = $100, P_y = $50, and M = $2,000. What is the own price elasticity of demand?

When the price of sugar was "low," consumers in the United States spent a total of $3 billion annually on its consumption. When the price doubled, consumer expenditures actually INCREASED to $4 billion annually. This indicates that:

The own price elasticity of demand for apples is -1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

Which of the following statements is INCORRECT?

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H. Then the demand for good x is:

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

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Exam 3: Quantitative Demand Analysis

The demand function in Table 3-1 is QXd = 100 - 2PX. Based on this information, compute the own price elasticity of demand when PX = $25 (point C).

If a price increase from $8 to $10 causes quantity demanded to fall from 500 to 400, what is the absolute value of the own price elasticity at a price of $10?

When the price of butter was "low," consumers spent $5 billion annually on its consumption. When the price doubled, consumer expenditures increased to $7 billion. Recently you read that this means that the demand curve for butter is upward sloping. Do you agree? Explain.

If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2 percent increase in the price of ketchup will lead to a:

Suppose the income elasticity for transportation is 1.8. Which of the following is an INCORRECT statement?

The cross-price elasticity of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will:

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

When marginal revenue is positive, demand is:

When marginal revenue is positive for a linear (inverse) demand function, decreases in output will cause total revenues to:

A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is -4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will:

When the own price elasticity of good X is -3.5, then total revenue can be increased by:

Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000. What is the own price elasticity of demand?

When the price of sugar was "low," consumers in the United States spent a total of $3 billion annually on its consumption. When the price doubled, consumer expenditures actually INCREASED to $4 billion annually. This indicates that:

The own price elasticity of demand for apples is -1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

Which of the following statements is INCORRECT?

Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then the demand for good x is:

The Fundamentals of Managerial Economics

Market Forces: Demand and Supply

The Theory of Individual Behavior

The Production Process and Costs

The Organization of the Firm

The Nature of Industry

Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets

Basic Oligopoly Models

Game Theory: Inside Oligopoly

Pricing Strategies for Firms With Market Power

The Economics of Information

Advanced Topics in Business Strategy

A Managers Guide to Government in the Marketplace

Filters

The demand function in Table 3-1 is Q_X^d = 100 - 2P_X. Based on this information, compute the own price elasticity of demand when P_X = $25 (point C).

Suppose Q_x^d = 10,000 - 2 P_x + 3 P_y - 4.5M, where P_x = $100, P_y = $50, and M = $2,000. What is the own price elasticity of demand?

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H. Then the demand for good x is: