Deck 5: Simple Pricing

Question 1

​If the price elasticity of demand is -0.8 and the firm increases price,revenue will

A)​Increase
B)Decrease
C)Stay constant
D)​become zero,they would lose all their customers

Answer 1

A

Question 2

​An rational,optimizing,self interested consumer would consume up to the point where

A)​the consumer surplus from the last unit is positive
B)the consumer surplus from the last unit is negative
C)the consumer surplus from the last unit is zero
D)​none of the above

Answer 2

C

Question 3

​Jim saw a decrease in the quantity demanded for his firm's product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250.What is Jim's own price elasticity of demand?

A)​1.29
B)1
C)0.25
D)​0.78

Answer 3

A

Question 4

​The first law of demand states that

A)​the quantity demanded increases as price falls
B)the quantity demanded decreases as price falls
C)the quantity demanded increases as price increases
D)​none of the above

Question 5

​The price elasticity of demand tells us about

A)​The sensitivity of price to quantity
B)The sensitivity of quantity to price
C)The sensitivity of income to price
D)​The sensitivity of income to quantity

Question 6

The government decided to reduce taxes on fast-food to increase revenue.The government assumes that fast-food products have

A)​An inelastic demand
B)An elastic demand
C)A demand curve that is upward sloping
D)​Unitary elastic demand curve

Question 7

​You have the following demand schedule for cheeseburgers.Use the table for questions

​What is your total consumer surplus at the optimal consumption level?

A)​$2
B)$3
C)$11.50
D)​$3.50

Question 8

​In general,the smaller the price elasticity:

A)​the smaller the responsiveness of price to changes in quantity. 
B)the smaller the responsiveness of quantity to changes in price.
C)the larger the responsiveness of price to changes in quantity. 
D)​the larger the responsiveness of quantity to changes in price. 

Question 9

​The difference between the value you place on a product and its market price is called

A)​Consumer surplus
B)Quantity demanded
C)Demand
D)​None of the above

Question 10

​Its lunch time,you are hungry and would like to have some pizza.By the law of diminishing marginal value,

A)​you would pay more for your first slice of pizza than your second
B)you would pay more for your second slice of pizza than your first
C)you would pay an equal amount of money for both the slices since they are identical
D)​none of the above

Question 11

​If MR>MC,then the firm should

A)​increase production
B)decrease production
C)keep the prices constant
D)​keep the production level constant

Question 12

​If MR

A)​increase production
B)decrease production
C)keep the prices constant
D)​keep the production level constant

Question 13

​What is consumer surplus?

A)​The maximum willingness to pay for a unit of a product
B)The price that an individual pays in equilibrium for a product
C)The difference between how much an individual is willing to pay for a product and how much he ends up paying
D)​How many units are traded in equilibrium

Question 14

​What is an aggregate demand curve

A)​The demand of an individual with respect to price
B)The total demand of the market with respect to price of a good
C)The preference of an individual in the market
D)​None of the above

Question 15

What criteria do consumers apply when deciding whether or not to consume​

A)​The consumer would consume only if the price is lower than his highest willingness to pay
B)The consumer would only consume if his surplus is greater than zero
C)The consumer would only consume if the price is higher than his highest willingness to pay
D)​Both A&B

Question 16

​You have the following demand schedule for cheeseburgers.Use the table for questions

​If the cheeseburger costs $2,how many cheeseburgers would you buy

A)​1
B)2
C)3
D)​4

Question 17

​If the price elasticity of demand is -0.8 and the firm decreases price,revenue will

A)​Increase
B)Decrease
C)Stay constant
D)​become zero,they would lose all their customers

Question 18

​A demand curves describes

A)​the amount of units a consumer will purchase at a given price
B)the amount of units a producer will sell at a given price
C)both the amount of units that a consumer will buy and a producer will produce at a given price
D)​the amount of units supplied given a change in prices

Question 19

​Which of the following statements is true

A)A firm should increase quantity as long as average cost is greater than price​
B)A firm should increase quantity as long as price is greater than marginal cost
C)A firm should increase quantity as long as price is higher than average cost,regardless of the marginal cost
D)​A firm should increase quantity as long as marginal cost is greater than price

Question 20

As a consumer you believe yourself to act rationally,optimally and self-interestedly.You like ice cream and value a pint at $7.Usually you buy a pint each week at $4.This week however,the price jumped to $5 a pint.What would you do?

A)​buy the ice cream since the price is still below your maximum willingness to pay
B)buy the ice cream since even at the new price it gives you a positive amount of consumer surplus
C)not buy the ice-cream since the price is now higher
D)​both A&B

Question 21

​Since demand is more inelastic for products that represent a smaller share of your income,which one of the following is true?

A)​the demand for shoe laces is more elastic than the demand for shoes
B)The demand for oil changes is more inelastic than the demand for cars
C)the demand for ear buds is more elastic than the demand for ipods
D)​the demand for Salt has a more elastic than the demand than meat

Question 22

​Jim recently graduated from college.His income increased dramatically;from$5000 a year to $60,000 a year.Jim decided that instead of using the bus,he would buy himself a car.This implies that

A)​The car is a normal good for Jim
B)The car is an inferior good for Jim
C)He is equally happy between using the bus and buying a car
D)​None of the above

Question 23

If the quantity sold of two-liter Coke bottles increases by 10% when price falls by 2%,what is the total change in revenue?

A)​Revenue increases by 12%
B)Revenue increases by 8%
C)Revenue falls by 8%
D)​Revenue falls by 12%

Question 24

​The demand for a product is more elastic

A)​When it has few substitutes
B)In the long-run
C)When the expenditure on the product represent a small portion of the budget
D)​When the product is broadly defined

Question 25

​The demand for a product is more inelastic

A)​When it has many close substitutes
B)In the long-run
C)When it has many complements
D)​None of the above

Question 26

​If the current margin is greater than the desired margin,the firm should

A)​Increase price
B)Decrease price
C)Not change the price
D)​Marginal revenue and marginal cost are both zero

Question 27

​Given that the own-price elasticity of demand for a brand of shoes is -2,the demand for this brand of shoes is

A)​unitary elastic
B)indeterminate.
C)elastic.
D)​inelastic.

Question 28

​An owner of a local salon realized that by decreasing the prices that she charges for haircuts,her revenue has increased.This implies that

A)​The demand for her haircuts is elastic
B)The demand for her haircuts is inelastic
C)The demand for her haircuts is unitary elastic
D)​The demand for her  haircuts is perfectly inelastic

Question 29

​A research firm's findings concluded that the demand for movie tickets is price elastic in the afternoon but inelastic in the evenings.Given this information,to increase overall revenue the theatre owners should

A)​Reduce the ticket prices for the afternoon shows and reduce the ticket prices for the evening shows
B)Increase the ticket prices for the afternoon shows and reduce the ticket prices for the evening shows
C)Reduce the ticket prices for the afternoon shows and increase the ticket prices for the evening shows
D)​Increase the ticket prices for the afternoon shows and increase the ticket prices for the evening shows

Question 30

​The demand for Dell laptops is more price elastic than the demand for laptops as a whole.This can be best explained by the fact that

A)​There are fewer substitutes for Dell laptops than for laptops as whole
B)There are more substitutes for Dell laptops than for laptops as whole
C)Dell laptops are luxurious goods
D)​Dell laptops are a necessity

Question 31

​As price increases,demand typically

A)​becomes more elastic
B)becomes less elastic
C)does not change
D)​elasticity does not change

Question 32

​If the current margin is greater than the desired margin,the firm should

A)​Increase production
B)Decrease production
C)Not change production level
D)​Production ceases

Question 33

​A perfectly elastic demand curve

A)​Is a horizontal line parallel to the x axis
B)Has an elasticity of demand between 0 and 1
C)Is the demand curve of a product that usually has no substitutes
D)​None of the above

Question 34

​If potatoes are inferior goods,which of the following will increase the demand for potatoes?

A)​Increase in the price of a complement
B)Decrease in income
C)Decrease in the price of a substitute
D)​Increase in income

Question 35

​If the current margin is greater than the desired margin,

A)​MR=MC
B)MR>MC
C)MRD)​Marginal revenue and marginal cost are both zero

Question 36

Given that the own-price elasticity of demand for a brand of shoes is -2,if the price rises by 8%,what will happen to the quantity of shoes demanded?​

A)​It will decrease by 16%
B)It will increase by 16%
C)It will decrease by 1.6%
D)​It will decrease by 1.6%

Question 37

Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:

A)​lower tax revenue in both the short and long run. 
B)raise tax revenue in both the short and long run.
C)raise tax revenue in the short run but lower tax revenue in the long run. 
D)​lower tax revenue in the short run but raise tax revenue in the long run. 

Question 38

If quantity demanded for rice falls by 4% when price increases 8%,we know that the absolute value of the own-price elasticity of rice is:

A)​2.5.
B)0.5.
C)2.
D)​0.40.

Question 39

​If cars are normal goods,a fall in income will

A)​Increase the demand for cars
B)Decrease the demand for cars
C)Have no effect on the demand for cars
D)​None of the above

Question 40

​Which of the following goods is most likely to have a negative income elasticity of demand?

A)​Automobiles
B)Bargain brand noodles
C)Shoes
D)​Fine Jewelry

Question 41

​In general,the larger the price elasticity:

A)​the smaller the responsiveness of price to changes in quantity. 
B)the smaller the responsiveness of quantity to changes in price.
C)the larger the responsiveness of price to changes in quantity. 
D)​the larger the responsiveness of quantity to changes in price. 

Question 42

​If the quantity demanded of good x rises by 3% and,in response,your income goes up by 2%,the income elasticity of demand would be:

A)​1.5
B)6
C)3
D)​.20

Question 43

​Amber's Ambrosia's share of the delicacy market is 10% If the own price elasticity of the aggregate fast food industry is 0.8,what is the own price elasticity of Amber's fast food?

A)​5
B)6
C)7
D)​8

Question 44

​The demand for Nike shoes is _________________ than the demand for shoes in general.

A)​More elastic
B)More inelastic
C)Less elastic
D)​Less inelastic

Question 45

​As the number of substitutes for a good increases,the absolute value of its own-price elasticity

A)​stays the same
B)increases
C)decreases
D)​the good becomes perfectly inelastic.

Question 46

​Gas stations can price the products that they sell in their convenience store a little bit higher because

A)​these products are usually complements to the gas sales and the demand for gas is inelastic
B)these products are usually complements to the gas sales and the demand for gas is elastic
C)these products are usually substitutes to the gas sales and the demand for gas is inelastic
D)​these products are usually substitutes to the gas sales and the demand for gas is elastic

Question 47

​Ingrid's Ice cream Parlor has an own price elasticity of 5.It has an approximate share of 10% in the market for ice cream.What is the aggregate own price elasticity of the market?

A)​0.1%
B)0.5%
C)0.7%
D)​1%

Question 48

​A gas station opened up on the highway in a patch where there are no gas stations close by.It is more likely to be able to set higher prices because

A)​the demand for its product is more inelastic due to an unavailability of substitutes
B)the demand for its product is more elastic due to an unavailability of substitutes
C)the demand for its product is more inelastic due to an availability of substitutes
D)​the demand for its product is more elastic due to an availability of substitutes

Question 49

​The demand for insulin is typically_________________ than the demand for a large screen TV.

A)​More elastic
B)More inelastic
C)Less elastic
D)​Less inelastic

Question 50

​Which of the following is false?

A)​Products with more close substitutes have more elastic demand
B)The demand for any individual brand is less elastic than industry aggregate demand
C)Products with many complements have less elastic demand
D)​In the long run,demand curves become more elastic

Question 51

​A price elasticity of demand of -0.67 implies

A)​Demand is inelastic
B)Demand is elastic
C)Demand is unitary elastic
D)​Demand is perfectly elastic

Question 52

The manager of a gas station noticed that when prices in the convenience store of the gas station decreased,gas sales increased.This could possibly be because the convenience store products are

A)​usually complements to the gas sales 
B)usually substitutes to the gas sales
C)usually unrelated to the gas sales
D)​none of the above

Question 53

​As the price of dvds increases from $3 to $5,the quantity demanded falls from 220,000 to 180,000. The price elasticity of demand for dvds is:

A)​-0.40
B)-0.33
C)-3.00
D)​-2.50

Question 54

​Which of the following statement is true?

A)​The demand for Cheerios is less elastic than the demand for cereal
B)The demand for gas is more elastic in the short-run than in the long-r
C)The demand for puma shoes is more elastic than the demand for shoes
D)​Products with many complements have a more elastic demand

Question 55

​A price elasticity of demand of 2.3 implies

A)​Demand is inelastic
B)Demand is elastic
C)Demand is unitary elastic
D)​Demand is perfectly elastic

Question 56

​Phil's filling station gas station operates on a patch on the highway in a patch where there were no gas stations close by.It enjoyed high profits.After a while,Glen's gas another gas station opened up close by.The profits for the first gas station are likely to decrease because

A)​it has to lower prices,since its product is now more price elastic
B)It has to lower prices since its product is now more price inelastic
C)due to the increased availability of substitutes
D)​both A&C

Question 57

​The own price elasticity of Anne's apple pies is 5.If the aggregate market for apple pies has an own price elasticity of 1.25,Anne's apple pies has an approximate market share of

A)​6.25%
B)25%
C)10%
D)​20%

Question 58

​For complements,cross price elasticity of demand is:

A)​Negative
B)Positive
C)between zero and one only
D)​zero. 

Question 59

The quantity demanded of good X falls by 20% and,in response,your income goes down by 10% and,the income elasticity of demand would be:

A)​2
B)4
C).5
D)​.20

Question 60

​Puma's share of the athletic shoe market is 30% The own price elasticity of demand for Puma athletic shoes is 2.5.What would be the own price elasticity of athletic shoes as a whole?

A)​8.3
B)0.75
C)0.54
D)​1.5

Question 61

​What is the most likely effect of the development of XBOX with DVD capabilities on the DVD player industry?

A)​Increased price elasticity of demand for the DVD player industry because XBOX are complements
B)decreased price elasticity of demand for the DVD player industry because XBOX are complements
C)Increased price elasticity of demand for the DVD player industry because XBOX are substitutes
D)​decreased price elasticity of demand for the DVD player industry because XBOX are substitutes

Question 62

​Use the following table for questions

If the government wants to decrease the quantity consumed of cigarettes 20%,what percentage of tax would they have to levy on cigarette consumption?​

A)​20%
B)30%
C)40%
D)​50%

Question 63

​A product can be classified as an inferior good if an increase in the income causes

A)​A decrease in the quantity demanded
B)A decrease in demand
C)An increase in demand
D)​An increase in the quantity demanded. 

Question 64

​Use the following table for questions

​If the government wants to decrease the quantity consumed of alcohol by 20%,what percentage of tax would they have to levy on alcohol consumption?

A)​20%
B)30%
C)40%
D)​50%

Question 65

​If mortgages and houses are complements in consumption and interest rates decrease,we would expect to see

A)​An increase in demand for houses
B)An decrease in demand for houses
C)An increase in the quantity of houses demanded
D)​An decrease in the quantity of houses demanded

Question 66

​What is the most likely effect of the development of cell phones on the pay phone industry?

A)​the own price elasticity of pay phones increases
B)the own price elasticity of pay phones decreases
C)the price elasticity of home phones does not change
D)​none of the above

Question 67

​Use the following table for questions

​Which of the three product has a unitary elastic demand curve?

A)​Cigarettes
B)Alcohol
C)Sodas
D)​None of the above

Question 68

​If Dell and Toshiba computers are substitutes and the price of dell computers increases we would expect to see

A)​An increase in demand for Toshiba computers
B)An decrease in demand for Toshiba computers
C)An increase in the quantity of Toshiba computers demanded
D)​An decrease in the quantity of Toshiba computers demanded

Question 69

What is a normal good?​

A)​A good whose demand increases when income decreases
B)A good whose demand decreases when income decreases
C)A good whose demand increases when price increases
D)​Both B&C

Question 70

​Jim recently graduated from college.His income increased dramatically;from$5000 a year to $60,000 a year.Jim decides that instead of using the bus,he would buy a car.This implies that

A)​The car is a normal goods for Jim
B)The car is an inferior goods for Jim
C)The bus and the car are complementary for Jim
D)​Need information on the price of cars

Question 71

​Use the following table for questions

​If the government wants to decrease the quantity consumed of soda by 30%,what percentage of tax would they have to levy on soda consumption?

A)​10%
B)20%
C)30%
D)​40%

Question 72

​Jim saw a decrease in the quantity demanded for his firm's product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250.Based on this information,the price elasticity of demand for Jim's product is

A)​>1
B)1
C)<1
D)​0

Question 73

​If your income goes up by 2% and,in response,the quantity demanded of good x rises by 3%, good x can be considered

A)​An inferior good
B)A normal good
C)A public good
D)​A private good

Question 74

If a decrease in the price of a good decreases the total revenue,the demand for the good is​

A)​price elastic
B)price inelastic
C)income elastic
D)​income inelastic

Question 75

An economist estimated the cross-price elasticity for peanut butter and jelly to be -1.5.Based on this information,we know the goods are

A)​inferior goods.
B)complements.
C)inelastic.
D)​substitutes.

Question 76

​As the price of video games is raised from $20to $25,their quantity demanded fell from 1.5 million copies to 1 million copies. The price elasticity of demand for video games is:

A)​-0.55
B)-1.8
C)-1.33
D)​-2.08

Question 77

​For substitutes,cross price elasticity of demand is:

A)​Negative
B)Positive
C)between zero and one only
D)​zero. 

Question 78

​Use the following table for questions

​If the government could raise taxes on one good,which product should the government increase tax rates in order to raise tax revenue?

A)​Cigarettes
B)Alcohol
C)Sodas
D)​None of the above

Question 79

​Based on the information above,video games have

A)​A unitary elastic demand
B)An inelastic demand
C)An elastic demand
D)​A perfectly elastic demand

Question 80

​If your income goes up by 2% and,in response,the quantity demanded of good x falls by 3%,the good x can be considered

A)​An inferior good
B)A normal good
C)A public good
D)​A private good