Exam 7: Consumer Choice and Elasticity

If the demand for a product is elastic,the quantity demanded changes by a larger percentage than the percentage change in price.

Jaycee Jeans sold 40 pairs of jeans at a price of $40.When it lowered its price to $20,the quantity sold increased to 60 pairs.Calculate the absolute value of the price elasticity of demand.Use the midpoint formula.

If 50 units are sold at a price of $20 and 80 units are sold at a price of $15,what is the absolute value of the price elasticity of demand? Use the midpoint formula.

The economic model of consumer behavior explains how consumers' tastes and preferences are formed.

Facing stiff competition,Hendrix College,a small liberal arts institution in Conway,Ark. ,decided two years ago to bolster its academic offerings,promising students at least three hands-on experiences outside the classroom,including research,internships and service projects.Although it raised tuition and fees by 29 percent,enrollment in the freshman class rose by 37 percent. Source: Jonathan D.Glater and Alan Finder,"In New Twist on Tuition Game,Popularity Rises With the Price," New York Times,December 12,2006 Based on the information above,the demand for Hendrix College education is

A good is path dependent when

Which of the following would result in a higher absolute value of the price elasticity of demand for a product?

Suppose the price of gasoline in July 2004 averaged $1.35 a gallon and 15 million gallons a day were sold.In October 2004,the price averaged $2.15 a gallon and 14 million gallons were sold.If the demand for gasoline did not shift between these two months,use the midpoint formula to calculate the price elasticity of demand.Indicate whether demand was elastic or inelastic.

List three reasons why demand for a product will often increase if the product is endorsed by a celebrity.

The Mass Rapid Transit (MRT)System in Hong Kong has been running significant losses.Transport Ministry officials have argued over whether to raise fares to combat the losses.One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours.Suppose that the current fare is $4 and the government is considering raising it to $6.Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day. a.What is the estimated elasticity of demand for MRT rides? b.What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system? c.Last year,the MRT system incurred a loss of $50,000 per day.Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

Grace Makutsi finally bought a pair of blue shoes that she had been coveting for a long time.In less than a week she discovered that the shoes were uncomfortable.Grace went back to wearing her old pair and stashed away the new pair.When asked by her boss,Mme.Ramotswe why does she not simply give away the new pair,she said: "But I paid so much for them." Grace's behavior

Which of the following statements is true about the price elasticity of demand along a downward sloping linear demand curve?

A significant downside to network externalities is that

Standard economic theory asserts that sunk costs are irrelevant in making economic decisions,yet studies conducted by behavioral economists reveal that sunk costs often affect economic decisions.Which of the following could explain this observation?

The demand for gasoline is perfectly inelastic because most people need gasoline to drive their cars.

Economists would refer to the increase in product sales because of celebrity endorsements as being the result of

Many celebrities are paid to endorse products,but celebrity endorsements do come with risks.Once a firm is associated with a celebrity,consumers associate the product with the celebrity.This association can turn negative if the celebrity gets arrested or becomes associated with an embarrassing scandal.Should a company whose celebrity endorser was just arrested be guided by the amount it has already poured into making ads featuring the celebrity in its decision about whether or not to cancel the ad campaign?

After getting an A on your economics exam,you decide to go to your favorite Mexican restaurant to celebrate.You are having trouble deciding whether to order the chipotle chicken chimichanga or the cilantro seafood enchiladas.Use the rule of equal marginal utility per dollar to determine which one to purchase: (a)the chimichanga for $8 which gives you 120 units of utility,or (b)the enchiladas for $15 which gives you 195 units of utility?

Table 7-2 Table 7-2 above shows Keira's utility from soup and sandwiches.The price of soup is $2 per cup and the price of a sandwich is $3.Keira has $18 to spend on these two goods. -Refer to Table 7-2.What is Keira's marginal utility per dollar spent on the third cup of soup?

Jamal,Lawson and Kyle have been standing in line for almost an hour waiting to be served at Kirala,a popular new Japanese restaurant.It is possible that some of the people in line won't be served at all before the restaurant closes.Which of the following could explain why the restaurant does not simply raise prices high enough to eliminate the lines? a.In situations where consumption takes place publicly,demand for the product is also influenced by how many other people are buying the product.Consequently,a popular restaurant that increased its prices enough to eliminate lines might find that it had also eliminated its popularity. B.Firms may sometimes not raise their prices for fear that it violates people's sense of fairness and might alienate customers. C.The demand for restaurant meals is relatively elastic and if the firm raise prices it will lower its profits.