Deck 15: A: Market Demand

Question 1

If the demand function is q = 3m/p,where m is income and p is price,then the absolute value of the price elasticity of demand decreases as price increases.

Answer 1

False

Question 2

If a rational consumer must consume either zero or one unit of a good,then an increase in the price of that good with no change in income or in other prices can never lead to an increase in the consumer's demand for it.

Answer 2

True

Question 3

The market demand curve is simply the horizontal sum of the individual demand curves.

Answer 3

True

Question 4

If a price changes,then changes in consumption at the intensive margin are changes that happen because consumers alter the amounts that they consume but do not either stop consuming or start consuming the good.

Question 5

If the elasticity of demand curve for barley is -1.50 at all prices higher than the current price,we would expect that when bad weather reduces the size of the barley crop,total revenue of barley producers will fall.

Question 6

If the amount of money that people are willing to spend on a good stays the same when its price doubles,then demand for that good must have a price elasticity of demand smaller in absolute value than 1.

Question 7

The inverse demand curve P(x)for a good x measures the price per unit at which the quantity x would be demanded.

Question 8

If the equation for the demand curve is q = 50 -4p,then the ratio of marginal revenue to price is constant as price changes.

Question 9

If a consumer has to pay his reservation price for a good,then he gets no consumer surplus from purchasing it.

Question 10

Marginal revenue is equal to price if the demand curve is horizontal.

Question 11

The demand curve is inelastic for inferior goods and elastic for normal goods.

Question 12

If the equation for the demand curve is q= 20 - 2p,then the ratio of marginal revenue to price is constant as price changes.

Question 13

If the demand curve is a linear function of price,then the price elasticity of demand is the same at all prices.

Question 14

In the reservation price model,either aggregate demand is zero or everyone demands one unit of the good.

Question 15

The Laffer effect occurs only if there is a backward-bending labor supply curve.

Question 16

If the demand curve were plotted on graph paper with logarithmic scales on both axes,then its slope would be the elasticity of demand.

Question 17

If the price elasticity of demand for a normal good is constant,then a price increase of 10A2 will reduce demand by more if the original price is $1 than if the original price is $2.

Question 18

In general,aggregate demand depends only on prices and total income and not on income distribution.

Question 19

If the elasticity of demand curve for buckwheat is -1.25 at all prices higher than the current price,we would expect that when bad weather reduces the size of the buckwheat crop,total revenue of buckwheat producers will fall.

Question 20

If consumer 1 has the demand function x₁ = 1,000 -2p and consumer 2 has the demand function x₂ = 500 - p,then the aggregate demand function for an economy with just these two consumers would be x=1,500 - 3p for p $\lt$ 500.

Question 21

Rod cares about the number of cars he has and the amount of money he has to spend on other stuff.The only possibilities of interest for Rod are having 0,1,or 2 cars.Where x is the number of cars he has and y is the money he has per year for other stuff,Rod's utility is U(0,y)=y^.5,U(1,y)=(15/14)y^.5,and U(2,y)=(10/9)y^.5.Rod's income is $25,000 a year.It would cost Rod $2,500 a year to have 1 car and $3,500 a year to have 2 cars.How many cars will he choose?

A) 0
B) 1
C) 2
D) He is indifferent between buying 1 and buying 2 cars.
E) He is indifferent between buying 2 and buying 3 cars.

Question 22

A peck is 1/4 of a bushel.If the price elasticity of demand for oats is -0.60 when oats are measured in bushels,then when oats are measured in pecks,the price elasticity of demand for oats will be

A) 20.15.
B) 22.40.
C) 20.30.
D) 21.20.
E) none of the above.

Question 23

If the demand function for tickets to a play is q =7,500 - 75p,at what price will total revenue be maximized?

A) $100
B) $200
C) $50
D) $25
E) none of the above.

Question 24

If the price of cucumbers falls by $2 per pound,then the demand for cucumbers will rise by 10 pounds.Therefore we can conclude that the demand for cucumbers is elastic.

Question 25

A peck is 1/4 of a bushel.If the price elasticity of demand for peas is -0.10 when peas are measured in bushels,then when peas are measured in pecks,the price elasticity of demand for peas will be

A) -0.10.
B) -0.40.
C) -0.03.
D) -0.20.
E) none of the above.

Question 26

In Manifold,Missouri (pop.1,000),people all have the same tastes and they all like Buicks.Nobody wants more than one Buick,but a person with income $M is willing to pay about $.10M per year to have a Buick.Nobody in Manifold has an income greater than $50,000 and nobody has an income less than $10,000.For incomes,$M,between $10,000 and $50,000,the number of people with incomes greater than $M is about 1,250-.025M.If it costs $2,000 a year to have a Buick,how many people in Manifold will demand Buicks?

A) 500
B) 750
C) 100
D) 600
E) 800

Question 27

If Castor's demand curve is described by q = 40 - p and Pollux's demand curve is given by q = 60 - 2p,then each of their demand curves will pass through the point q=20,p F=20.Therefore if they are the only two consumers in a market,the market demand curve will also pass through q = 20,p = 20.

Question 28

Dr.Social Science has recently figured out how to clone consumers.His first effort was done on the population of Walla,Washington.Each original citizen got a clone who had exactly the same income and preferences.Which of the following statements describes what happened to the demand function for tuna-fish casseroles in Walla?

A) The elasticity doubled and the slope remained constant.
B) The elasticity did not change at any price.
C) The elasticity of demand doubled and the slope doubled.
D) The elasticity halved and the slope remained constant.
E) none of the above.

Question 29

The inverse demand for a good is given by p =60 - 2q.Suppose that the number of consumers doubles.(For each consumer in the market another consumer with an identical demand function appears. )The demand curve shifts to the right,doubling demand at every price,while the slope of the demand curve stays unchanged.

Question 30

The demand function is described by the equation q(p)F= 130 -p/5.The inverse demand function is described by the equation

A) p(q)= 650 - 5q.
B) p(q)= 1/130 - q/5.
C) q(p)= 130 - 5p.
D) q(p)= 1/(130 - p/5).
E) p(q)= 130 - q/5.

Question 31

The demand function for potatoes has the quantity q = 1,000 - 10p.As the price of potatoes changes from 10A2 to 20A2,the absolute value of the price elasticity of demand for potatoes increases.

Question 32

The demand function is described by the equation q(p)= 30 -p/3.The inverse demand function is described by the equation

A) q(p)=30 - 3p.
B) p(q)= 90- 3q.
C) q(p)=1/(30- p/3).
D) p(q)= 1/30 -q/3.
E) p(q)=30 - q/3.

Question 33

At the price of $100,tourists demand 267 airplane tickets.At the same price,business travelers demand 237.At the price $110,tourists demand 127 tickets and business travelers demand 127.Assuming that the demand curves of business travelers and tourists are both linear over this price range,what is the price elasticity of demand at the price $100?

A) -4.96
B) -25
C)-5.46
D) -0.05
E) none of the above.

Question 34

If the demand function for tickets to a play is q = 3,800 - 95p,at what price will total revenue be maximized?

A) $80
B) $40
C) $20
D) $10
E) none of the above.

Question 35

Rollo would love to have a Mercedes.His preferences for consumption in the next year are represented by a utility function U(x,y),where x = 0 if he has no Mercedes and x = 1 if he has a Mercedes for the year and where y is the amount of income he has left to spend on other stuff.If U(0,y)= the square root of y and U(1,y)=(10/9)(y^.5)and if Rollo's income is $50,000 a year,how much would he be willing to pay per year to have a Mercedes?

A) $5,555.55
B) $5,000
C) $12,200
D) $9,500
E) $10,000

Question 36

If the price of leeks falls by $2 per pound,then the demand for leeks will rise by 10 pounds.Therefore we can conclude that the demand for leeks is elastic.

Question 37

If the demand curve for a good is given by the equation q = 2/p,where q is quantity and p is price,then at any positive price,the elasticity of demand will be -1.

Question 38

If consumer 1 has the inverse demand function given by p = 15 - x and consumer 2 has the inverse demand function given by p = 20 - 3x,then the total quantity demanded by the two consumers is x = 7 when the price p,is 11.

Question 39

If the demand function is q = m - 2(ln p)over some range of values of p,then at all such values of p,the absolute value of the price elasticity of demand

A) increases as p increases.
B) decreases as p increases.
C) is constant as p changes.
D) increases with p at small values and decreases with p at large values.
E) decreases with p at large values and increases with p at small values.

Question 40

In Ozone,California,people all have the same tastes and they all like hot tubs.Nobody wants more than one hot tub but a person with wealth $W will be willing to pay up to $.01W for a hot tub.The number of people with a wealth greater than $W for any given W in Ozone is approximately 1,000,000/W.The price elasticity of demand for hot tubs in Ozone,California,is

A) -0.1.
B) -0.01.
C) -1.
D) -0.4.
E) none of the above.

Question 41

At the price of $100,tourists demand 237 airplane tickets.At the same price,business travelers demand 247.At the price $110,tourists demand 127 tickets and business travelers demand 127.Assuming that the demand curves of business travelers and tourists are both linear over this price range,what is the price elasticity of demand at the price $100?

A) -4.75
B)-5.23
C) -23
D) -0.05
E) none of the above.

Question 42

A firm faces a demand function D(p),for which the revenue-maximizing price is $10.The demand function is altered to 2D(p).What is the new revenue-maximizing price?

A) $5
B) $20
C) $10
D) There is insufficient information to determine this.
E) none of the above.

Question 43

Harry's demand function for blueberries is x = 20 -p,where p is the price and x is the quantity demanded.If the price of blueberries is 3,then what is Harry's price elasticity of demand for blueberries?

A) -6/14
B) -2/20
C) -2
D) -14/6
E) none of the above.

Question 44

The inverse demand function for grapes is described by the equation p = 518 - 5q,where p is the price in dollars per crate and q is the number of crates of grapes demanded per week.When p =$38 per crate,what is the price elasticity of demand for grapes?

A) -190/96
B) -5/518
C) -5/96
D) -96/38
E) -38/480

Question 45

If the supply curve for x is given by x=100p²,then the inverse supply curve is given by

A) 100/p².
B) x²/100.
C) x^1/2/10.
D) p^-2/100.
E) none of the above.

Question 46

Ed has 100 tons of manure.The lowest price at which he is willing to sell it is $10 per ton.Fred wants to buy 100 tons of manure.The most he is willing to pay is $8 per ton.The federal government offers to subsidize manure sales at a rate of $1 per ton.If Ed and Fred are the only people who deal in manure,then the deadweight loss caused by the subsidy is

A) $100.
B) $50.
C) $0.
D) $200.
E) none of the above.

Question 47

The inverse demand function for coffee is p=50,000 - 2q,where q is the number of tons produced and p is the price per ton.Total revenue from coffee sales be maximized when the output level is

A) 25,000 tons.
B) 15,000 tons.
C) 17,500 tons.
D) 12,500 tons.
E) none of the above.

Question 48

The inverse demand function for soybeans is p = 68,000 -5q.Total revenue in this market will be maximized when the quantity of soybeans produced is

A) 3,400 bushels.
B) 7,911 bushels.
C) 6,800 bushels.
D) 13,600 bushels.
E) none of the above.

Question 49

The demand function for small business computers in the United States is given by x=200- 10p,where x is annual sales measured in thousands of computers and p is the price of a computer measured in thousands of dollars.Japanese firms supply a big share of these computers.They measure prices in yen where 150 yen equal 1 dollar.The price of 1 computer is $10,000.Let E_u be the price elasticity of demand at this price as calculated by US firms who measure in dollars,and let E_j be the price elasticity of demand at the same $10,000 price but measured in yen by the Japanese firms.Which of the following are the values of E_u and E_j,respectively?

A) -1,2150
B) -1,21
C) -2,22
D) -2,2300
E)-2,20.0133

Question 50

The inverse demand function for grapes is described by the equation p =676 - 9q,where p is the price in dollars per crate and q is the number of crates of grapes demanded per week.When p =0 $28 per crate,what is the price elasticity of demand for grapes?

A) -9/676
B)-9/72
C) -72/28
D) -252/72
E) -28/648

Question 51

Given his current income,Rico's demand for bagels is related to the price of bagels by the equation Q= 540 -16P.Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes.If Rico's income quadruples,his demand for bagels will be related to the price of bagels by the equation

A) Q =540 - 16P.
B) Q =2,160 -64P.
C) Q= 540 - 32P.
D) Q =1,080 -32P
E) Q =1,080 - 16P.

Question 52

In the village of Frankfurter,the demand function for sausages per person is D(p)= 20-1.5p,where p is the price of a single sausage.The present population of Frankfurter is 100 persons.Suppose that 10 more people move into town,each of whom has the same demand function as the old residents.At a price of $2,the price elasticity of demand for sausages in Frankfurter is

A) increased by 10%.
B) decreased by 10%.
C) unchanged.
D) increased by 15%.
E) none of the above.

Question 53

When the price of bananas is 50 cents a pound,the total demand is 100 pounds.If the price elasticity of demand for bananas is -2,what quantity would be demanded if the price rose to 60 cents a pound?

A) 50 pounds
B) 90 pounds
C) 60 pounds
D) 80 pounds
E) 70 pounds

Question 54

A person with a quasilinear utility function will

A) have a price elasticity of demand equal to zero for some goods.
B) have an income elasticity of demand equal to one for some goods.
C) necessarily consume zero quantity of some good.
D) necessarily consume positive amounts of every good.
E) none of the above.

Question 55

The inverse demand function for soybeans is p = 30,000 - 6q.Total revenue in this market will be maximized when the quantity of soybeans produced is

A) 3,611 bushels.
B) 5,000 bushels.
C) 1,250 bushels.
D) 2,500 bushels.
E) none of the above.

Question 56

An economy has 100 consumers of type 1 and 200 consumers of type 2.If the price of the good is less than $10,then each type 1 consumer demands 10- p units of the good;otherwise each type 1 demands zero.If the price of the good is less than 8,then each type 2 demands 24 - 3p;otherwise each type 2 demands zero.If the price of the good is 6,then the total amount of the good demanded will be

A) 1,600 units.
B) 1,800 units.
C) 2,000 units.
D) 420 units.
E) 1,200 units.

Question 57

A firm faces a demand function D(p),for which the revenue-maximizing price is $16.The demand function is altered to 2D(p).What is the new revenue-maximizing price?

A) $8
B) $16
C) $32
D) There is insufficient information to determine this.
E) none of the above.

Question 58

Jen,Eric,and Kurt are all buyers of chain saws.Jen's demand function is Q_j =520 -13P,Eric's demand function is Q_e= 40 - P,and Kurt's demand function is Q_k =200 -5P.Together,these three constitute the entire demand for chainsaws.At what price will the price elasticity of market demand be 21?

A) $19
B) $20
C) $25
D) $15
E) none of the above.

Question 59

Given his current income,Rico's demand for bagels is related to the price of bagels by the equation Q = 520 - 12P.Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes.If Rico's income quadruples,his demand for bagels will be related to the price of bagels by the equation

A) Q=520 - 24P.
B) Q = 1,040 - 24P.
C) Q = 2,080 - 48P.
D) Q =520 -12P.
E) Q = 1,040 - 12P.

Question 60

If there are only two goods,an increase in the price of good 1 will increase the demand for good 2

A) if and only if the price elasticity of demand for good 2 is greater than 1 in absolute value.
B) whenever both goods are normal goods.
C) only if the two goods are perfect substitutes.
D) never.
E) none of the above.

Question 61

The demand for tickets to a rock concert is given by D(p)= 200,000 -10,000p,where p is the price of tickets.If the price of tickets is $17,then the price elasticity of demand for tickets is

A) -2.83.
B) -11.33.
C) -17.
D) -8.50.
E) -5.67.

Question 62

In a small Kansas town,there are two kinds of gasoline consumers: 100 Buick owners and 50 Dodge owners.Each Buick owner has the demand function D_b(p)=max<0,20 - 5p> and each Dodge owner has the demand function D_d =max<0,15 - 3p>.In this town,the market demand curve has

A) no kinks but gets steeper as price rises.
B) no kinks but gets flatter as price rises.
C) constant slope since individual demand curves have constant slope.
D) a kink at p = 4 and another at p = 5.
E) a kink at p = 35/8.

Question 63

In Gas Pump,South Dakota,every Buick owner's demand for gasoline is 20-5p for p less than or equal to 4 and 0 for p $\gt$ 4.Every Dodge owner's demand is 15 - 3p for p less than or equal to 5 and 0 for p $\gt$ 5.Suppose that Gas Pump has 100 Buick owners and 50 Dodge owners.If the price of gasoline is $4.25,what is the total amount of gasoline demanded in Gas Pump?

A) 112.50 gallons
B) 225 gallons
C) 168.75 gallons
D) 56.25 gallons
E) none of the above.

Question 64

The demand for watches is Q = 1,000P ^-0.50I^-1.Assume that per capita income I is $5,000.At a price P of $50,the price elasticity of demand is

A) 2.50.
B) 1.0.
C) -1.
D) -1.50.
E) 0.50.

Question 65

At a large institution of higher learning,the demand for football tickets at each game is 100,000 -6,000p.If the capacity of the stadium at that university is 60,000 seats,what is the revenue maximizing price for this university to charge per ticket?

A) $16.67
B) $8.33
C) $6.67
D) $4.17
E) $25

Question 66

The demand curve for a good is given by p =160 - 6q,where p is the price and q is the quantity of the good.Suppose that the number of consumers in the economy doubles;a "clone" of each consumer,who has exactly the same demand curve as the original consumer,appears.The demand curve for the doubled economy is described by

A) p =320 - 6q.
B) p =320 - 12q.
C) p = 160 - 12q.
D) p = 160 - 3q.
E) p =80 - 3q.

Question 67

The demand for tickets to a rock concert is given by D(p)= 200,000 -10,000p,where p is the price of tickets.If the price of tickets is $17,then the price elasticity of demand for tickets is

A) -11.33.
B) -8.50.
C) -17.
D) -2.83.
E)-5.67.

Question 68

The only quantities of good 1 that Barbie can buy are 1 unit or 0 units.For x₁ equal to 0 or 1 and for all positive values of x₂,suppose that Barbie's preferences were represented by the utility function (x₁ +8)(x₂ + 16).Then if her income were $4,her reservation price for good 1 would be

A) $4.44.
B) $8.50.
C) $2.22.
D) $.50.
E) $1.90.

Question 69

The only quantities of good 1 that Tomoko can buy are 1 unit or 0 units.For all positive values of x₂,Tomoko's preferences are represented by the utility function (x₁ + 14)(x₂+16).If her income is $20 and the price of good 2 is $1,then Tomoko's reservation price for good 1 is

A) $.88.
B) $8.50.
C) $2.40.
D) $4.80.
E) $1.04.

Question 70

If at current prices,the demand for a good is price-elastic,then for movements along the demand curve,

A) increasing the price will increase revenue.
B) decreasing the price will decrease revenue.
C) increasing the quantity sold will increase revenue.
D) increasing the quantity sold will decrease revenue.
E) More than one of the above statements are true.

Question 71

Fred's price elasticity of demand for milk is -2 at today's prices when we measure price in dollars and quantity of milk in quarts.If the price per quart of milk stays the same but we measure quantity of milk in gallons and price in dollars,then what will be the elasticity of demand for gallons of milk? (A gallon is four quarts. )

A) -1
B) -1/2
C) -8
D) -4
E) -2

Question 72

If the marginal cost of making a photocopy is 2 cents and the elasticity of demand is 2.50,the profit-maximizing price is

A) 3 cents.
B) 3.33 cents.
C) 4 cents.
D) 5 cents.
E) 6 cents.

Question 73

At a large institution of higher learning,the demand for football tickets at each game is 100,000 - 8,000p.If the capacity of the stadium at that university is 60,000 seats,what is the revenue maximizing price for this university to charge per ticket?

A) $6.25
B) $5
C) $12.50
D) $3.13
E) $18.75

Question 74

The demand curve for a good is given by p =60 - 8q,where p is the price and q is the quantity of the good.Suppose that the number of consumers in the economy doubles;a "clone" of each consumer,who has exactly the same demand curve as the original consumer,appears.The demand curve for the doubled economy is described by

A) p = 60 - 16q.
B) p = 120 - 8q.
C) p = 60- 4q.
D) p = 120- 16q.
E) p = 30 - 4q.

Question 75

The demand for drangles is given by D(p)= (p - 1)^-2,where p is the price of drangles.If the price of drangles is $19,then the price elasticity of demand for drangles is

A) -.80.
B) -7.60.
C) -5.70.
D) -3.80.
E)-1.90.

Question 76

The demand for drangles is given by D(p)=(p - 1)^-2,where p is the price of drangles.If the price of drangles is $20,then the price elasticity of demand for drangles is

A) -7.62.
B) -.81.
C) -5.71.
D) -3.81.
E) -1.90.

Question 77

The only quantities of good 1 that Irene can buy are 1 unit or 0 units.For all positive values of x₂,Irene's preferences are represented by the utility function (x₁ +10)(x₂ +2).If her income is $8 and the price of good 2 is $1,then Irene's reservation price for good 1 is

A) $1.82.
B) $1.50.
C) $.91.
D) $5.
E) $.10.

Question 78

The only quantities of good 1 that Barbie can buy are 1 unit or 0 units.For x₁ equal to 0 or 1 and for all positive values of x₂,suppose that Barbie's preferences were represented by the utility function (x₁ + 4)(x₂ + 18).Then if her income were $16,her reservation price for good 1 would be

A) $13.60.
B) $6.80.
C) $9.50.
D) $0.22.
E) $4.40.

Question 79

In Gas Pump,South Dakota,every Buick owner's demand for gasoline is 20 - 5p for p less than or equal to 4 and 0 for p $\gt$ 4.Every Dodge owner's demand is 15 -3p for p less than or equal to 5 and 0 for p $\gt$ 5.Suppose that Gas Pump has 100 Buick owners and 100 Dodge owners.If the price of gasoline is $4.50,what is the total amount of gasoline demanded in Gas Pump?

A) 300 gallons
B) 75 gallons
C) 225 gallons
D) 150 gallons
E) none of the above.

Question 80

In a certain city,the demand function for crack cocaine is q = 1,000 - p,where p is the street price.The cocaine industry is competitive.Cocaine distributors can buy as much cocaine as they wish at a price of $50 per unit from Colombian sources.Whenever the city narcotics police catch a cocaine dealer,they confiscate all the cocaine that he has.The jails are full so they do not imprison the dealers.The police are able to catch the dealers about half the time,so they get about half the cocaine that enters the city.Instead of destroying confiscated crack,the police simply resell it on the street.If the original supply curve of cocaine on the streets was horizontal,what is the net effect of police activities on the market for crack in this city?

A) The amount purchased on the street is about 50 units smaller than it would be with no enforcement.
B) There is no effect,since all of the drugs reach consumers anyway.
C) Crack dealers will stop dealing in this city altogether,since they can make more money elsewhere.
D) The amount of crack purchased on the street decreases by about half.
E) The quantity purchased by dealers rises to make up for the amount that is confiscated.