question
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:
answer
lower tax revenue in the short run but raise tax revenue in the long run
question
Which one of the following is true?
answer
Salt has a less elastic demand than ice cream
question
Jim recently graduated from college. His income increased tremendously from earning $5,000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that
answer
houses are normal goods for Jim
question
Which of the following good has a negative income elasticity of demand?
answer
Items from Dollar stores
question
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
answer
Substitutes (I think the answer can also be complements)
question
Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if
answer
the marginal benefit of the sixth banana exceeds the price
question
Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market?
answer
Demand would fall, and Budweiser would reduce price
question
Which of the following is the reason for the existence of consumer surplus?
answer
Some consumers are willing to pay more than the price
question
A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost per dozen is $8. The cookies are becoming more popular with consumers, and so the bakery owner is considering raising the price to $20/dozen. What percentage of customers must be retained to ensure that the price increase is profitable?
answer
66.6%
question
Suppose your firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand is -3, how should you adjust price if you want to sell all of your output?
answer
5% lower
question
Individual demand
answer
Individual demand describes how many units an individual will purchase at a given price.
question
Aggregate Demand
answer
Aggregate demand, or market demand, is the total number of units that will be purchased by a group of consumers at a given price.
question
Pricing is an extent decision.
answer
Pricing is an extent decision. Reduce price (increase quantity) if MR > MC. Increase price (reduce quantity) if MR < MC. The optimal price is where MR 1⁄4 MC.
question
Price elasticity of demand
answer
Price elasticity of demand, e 1⁄4 (% change in quantity demanded) @ (% change in price)
1. Estimated price elasticity 1⁄4 [(Qt ␣ Q2)/ (Q1 þ Q2)] @ i(P1 ␣ P2)/(P1 þ P2)] is used to estimate demand from a price and quantity change.
2. If |e| > 1, demand is elastic; if |e| < 1, demand is inelastic.
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1. Estimated price elasticity 1⁄4 [(Qt ␣ Q2)/ (Q1 þ Q2)] @ i(P1 ␣ P2)/(P1 þ P2)] is used to estimate demand from a price and quantity change.
2. If |e| > 1, demand is elastic; if |e| < 1, demand is inelastic.
Page 78
question
% change in revenue
answer
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