Deck 4: Demand Analysis

Question 1

If MC = €5 and P = -4, the profit-maximizing price equals:

A)€4.
B)€20.
C)€6.67.
D)€6.25.

Answer 1

C

Question 2

When the crossprice elasticity PX = 1.5:

A)the quantity demanded rises by 1% with a 1.5% increase in the price of X.
B)demand rises by 1% with a 1.5% increase in the price of X.
C)demand rises by 1.5% with a 1% increase in the price of X.
D)the quantity demanded rises by 1.5% with a 1% increase in the price of X.

Answer 2

C

Question 3

The arc price elasticity of demand shows the percentage change in:

A)demand following a change in the price of a product itself.
B)the quantity demanded following a change in price of a product itself.
C)price following a change in the quantity demanded.
D)the price of a product itself following a change in demand.

Answer 3

B

Question 4

The law of diminishing marginal utility:

A)states that as an individual increases consumption of a given product within a set period of time, the marginal utility gained from consumption eventually becomes negative.
B)contradicts the nonsatiation principle.
C)measures the added satisfaction derived from a oneunit increase in consumption of a particular good or service, holding consumption of other goods and services constant.
D)gives rise to a downward-sloping demand curve for all goods and services.

Question 5

Utility theory does not assume that:

A)more is better.
B)each incremental unit of consumption brings some additional satisfaction.
C)consumers are able to rank order the desirability of various goods and services.
D)consumers know how much one product is preferred over another.

Question 6

If MR = €9,000 - €300Q and MC = €5,000 + €100Q, the profit-maximizing quantity is:

A)50.
B)30.
C)10.
D)20.

Question 7

If consumption of Y is depicted on the vertical axis and consumption of X is depicted on the horizontal axis, a parallel inward shift in the budget constraint occurs when:

A)prices for both X and Y fall by a given percentage.
B)the relative price of X rises.
C)the relative price of Y rises.
D)prices for both X and Y rise by a given percentage.

Question 8

If P1 = €10, Q1 = 500, P2 = €9.50 and Q2 = 550, then at point P1 the point price elasticity P equals:

A)-2.
B)2.
C)-0.5.
D)0.5.

Question 9

If MR = €9,000 - €300Q and MC = €5,000 + €100Q, the profit-maximizing price is:

A)€10.
B)€4,500.
C)€1,500.
D)€7,500.

Question 10

Goods for which 0 < I < 1 are often referred to as:

A)cyclical normal goods.
B)noncyclical normal goods.
C)being relatively unaffected by changing income.
D)inferior goods.