question
Suppose we estimate that the demand elasticity for fine leather jackets is -.7 at their current prices. Then we know that:
a. a 1% increase in price reduces quantity sold by .7%.
b. no one wants to buy leather jackets.
c. demand for leather jackets is elastic.
d. a cut in the prices will increase total revenue.
e. leather jackets are luxury items.
a. a 1% increase in price reduces quantity sold by .7%.
b. no one wants to buy leather jackets.
c. demand for leather jackets is elastic.
d. a cut in the prices will increase total revenue.
e. leather jackets are luxury items.
answer
a. a 1% increase in price reduces quantity sold by .7%.
question
If demand were inelastic, then we should immediately:
a. cut the price.
b. keep the price where it is.
c. go to the Nobel Prize Committee to show we were the first to find an upward sloping demand curve.
d. stop selling it since it is inelastic.
e. raise the price
a. cut the price.
b. keep the price where it is.
c. go to the Nobel Prize Committee to show we were the first to find an upward sloping demand curve.
d. stop selling it since it is inelastic.
e. raise the price
answer
e. raise the price
question
In this problem, demonstrate your knowledge of percentage rates of change of an entire demand function (HINT: %ΔQ = EP•%ΔP + EY•%ΔY). You have found that the price elasticity of motor control devices at AllenBradley Corporation is -2, and that the income elasticity is a +1.5. You have been asked to predict sales of these devices for one year into the future. Economists from the Conference Board predict that income will be rising 3% over the next year, and AB's management is planning to raise prices 2%. You expect that the number of AB motor control devices sold in one year will:
a. fall .5%.
b. not change.
c. rise 1%.
d. rise 2%.
e. rise .5%.
a. fall .5%.
b. not change.
c. rise 1%.
d. rise 2%.
e. rise .5%.
answer
e. rise .5%.
question
A linear demand for lake front cabins on a nearby lake is estimated to be: QD = 900,000 - 2P. What is the point price elasticity for lake front cabins at a price of P = $300,000? [HINT: Ep = (∂Q/∂P)(P/Q)]
a. EP = -3.0
b. EP = -2.0
c. EP = -1.0
d. EP = -0.5
e. EP = 0
a. EP = -3.0
b. EP = -2.0
c. EP = -1.0
d. EP = -0.5
e. EP = 0
answer
b. EP = -2.0
question
Property taxes are the product of the tax rate (T) and the assessed value (V). The total property tax collected in your city (P) is: P = T•V. If the value of properties rise 4% and if Mayor and City Council reduces the property the tax rate by 2%, what happens to the total amount of property tax collected? [HINT: the percentage rate of change of a product is approximately the sum of the percentage rates of change.}
a. It rises 6 %.
b. It rises 4 %.
c. It rises 3 %.
d. It rises 2 %
e. If falls 2%
a. It rises 6 %.
b. It rises 4 %.
c. It rises 3 %.
d. It rises 2 %
e. If falls 2%
answer
d. It rises 2 %
question
Which of the following would tend to make demand INELASTIC?
a. the amount of time analyzed is quite long
b. there are lots of substitutes available
c. the product is highly durable
d. the proportion of the budget spent on the item is very small
e. no one really wants the product at all
a. the amount of time analyzed is quite long
b. there are lots of substitutes available
c. the product is highly durable
d. the proportion of the budget spent on the item is very small
e. no one really wants the product at all
answer
d. the proportion of the budget spent on the item is very small
question
Identify the reasons why the quantity demanded of a product increases as the price of that product decreases.
a. as the price declines, the real income of the consumer increases
b. as the price of product A declines, it makes it more attractive than product B
c. as the price declines, the consumer will always demand more on each successive price reduction
d. a and b
e. a and c
a. as the price declines, the real income of the consumer increases
b. as the price of product A declines, it makes it more attractive than product B
c. as the price declines, the consumer will always demand more on each successive price reduction
d. a and b
e. a and c
answer
d. a and b
question
An increase in the quantity demanded could be caused by: (if the product is a superior good with substitute and complementary goods)
a. an increase in the price of substitute goods
b. a decrease in the price of complementary goods
c. an increase in consumer income levels
d. all of the above
e. none of the above
a. an increase in the price of substitute goods
b. a decrease in the price of complementary goods
c. an increase in consumer income levels
d. all of the above
e. none of the above
answer
d. all of the above
question
Goods having a negative calculated income elasticity are...
a. superior goods
b. producers' goods
c. nondurable goods
d. inferior goods
e. none of the above
a. superior goods
b. producers' goods
c. nondurable goods
d. inferior goods
e. none of the above
answer
d. inferior goods
question
If the cross price elasticity measured between items A and B is positive, the two products are referred to as:
a. complements
b. substitutes
c. inelastic as compared to each other
d. both b and c
e. a, b, and c
a. complements
b. substitutes
c. inelastic as compared to each other
d. both b and c
e. a, b, and c
answer
b. substitutes
question
When demand is ____ a percentage change in ____ is exactly offset by the same percentage change in ____ demanded, the net result being a constant total consumer expenditure.
a. elastic; price; quantity
b. unit elastic; price; quantity
c. inelastic; quantity; price
d. inelastic; price; quantity
e. none of the above
a. elastic; price; quantity
b. unit elastic; price; quantity
c. inelastic; quantity; price
d. inelastic; price; quantity
e. none of the above
answer
b. unit elastic; price; quantity
question
Marginal revenue (MR) is ____ when total revenue is maximized.
a. greater than one
b. equal to one
c. less than zero
d. equal to zero
e. equal to minus one
a. greater than one
b. equal to one
c. less than zero
d. equal to zero
e. equal to minus one
answer
d. equal to zero
question
The factor(s) which cause(s) a movement along the demand curve include(s):
a. increase in level of advertising
b. decrease in price of complementary goods
c. increase in consumer disposable income
d. decrease in price of the good demanded
e. all of the above
a. increase in level of advertising
b. decrease in price of complementary goods
c. increase in consumer disposable income
d. decrease in price of the good demanded
e. all of the above
answer
d. decrease in price of the good demanded
question
An increase in each of the following factors would normally provide a subsequent increase in quantity demanded, except:
a. price of substitute goods
b. level of competitor advertising
c. consumer income level
d. consumer desires for goods and services
e. a and b
a. price of substitute goods
b. level of competitor advertising
c. consumer income level
d. consumer desires for goods and services
e. a and b
answer
b. level of competitor advertising
question
The demand for durable goods tends to be more price elastic than the demand for non-durables.
a. true
b. false
a. true
b. false
answer
a. true
question
A price elasticity (ED) of −1.50 indicates that for a ____ increase in price, quantity demanded will ____ by ____.
a. one percent; increase; 1.50 units
b. one unit; increase; 1.50 units
c. one percent; decrease; 1.50 percent
d. one unit; decrease; 1.50 percent
e. ten percent; increase; fifteen percent
a. one percent; increase; 1.50 units
b. one unit; increase; 1.50 units
c. one percent; decrease; 1.50 percent
d. one unit; decrease; 1.50 percent
e. ten percent; increase; fifteen percent
answer
c. one percent; decrease; 1.50 percent
question
Those goods having a calculated income elasticity that is negative are called:
a. producers' goods
b. durable goods
c. inferior goods
d. nondurable goods
e. none of the above
a. producers' goods
b. durable goods
c. inferior goods
d. nondurable goods
e. none of the above
answer
c. inferior goods
question
An income elasticity (Ey) of 2.0 indicates that for a ____ increase in income, ____ will increase by ____.
a. one percent; quantity supplied; two units
b. one unit; quantity supplied; two units
c. one percent; quantity demanded; two percent
d. one unit; quantity demanded; two units
e. ten percent; quantity supplied; two percent
a. one percent; quantity supplied; two units
b. one unit; quantity supplied; two units
c. one percent; quantity demanded; two percent
d. one unit; quantity demanded; two units
e. ten percent; quantity supplied; two percent
answer
c. one percent; quantity demanded; two percent
question
When demand elasticity is ____ in absolute value (or ____), an increase in price will result in a(n) ____ in total revenues.
a. less than 1; elastic; increase
b. more than 1; inelastic; decrease
c. less than 1; elastic; decrease
d. less than 1; inelastic; increase
e. none of the above
a. less than 1; elastic; increase
b. more than 1; inelastic; decrease
c. less than 1; elastic; decrease
d. less than 1; inelastic; increase
e. none of the above
answer
d. less than 1; inelastic; increase
question
Factors affecting the price elasticity of demand include all of these EXCEPT:
a. percentage of the consumer's budget
b. the availability and closeness of substitutes
c. positioning as income inferior
d. time period of adjustment
e. all of the above affect the price elasticity of demand
a. percentage of the consumer's budget
b. the availability and closeness of substitutes
c. positioning as income inferior
d. time period of adjustment
e. all of the above affect the price elasticity of demand
answer
c. positioning as income inferior
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