Managerial Economics #3
If quantity demanded for sneakers falls by 6% when price increases 20% we know that the absolute value of the own-price elasticity of sneakers is
a) 0.3
The demand for good X is given by lnQ xd = 120 - 0.9 lnPx + 1.5 lnPy - 0.7 lnM. Which of the following statements is correct?
a) X has constant income elasticity.
Suppose the demand function is given by Q xd = 8Px.5 Py.25 M.12 H. Then the cross price elasticity between goods x and y is:
b) 0.25.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. What is the demand curve for good X?
d) 61500 - 4PX.
The short run response of quantity demanded to a change in price is usually:
b) Less than the long run response.
Suppose the demand for a product is Q xd = 5000 Px-1 then this Power function, own price elasticity for product x is
c) Unitary elastic.
The demand for good X has been estimated by Q xd =12 - 3Px + 4Py. Suppose that good X sells at $2 per unit and good Y sells for $1 per unit. Calculate the own price elasticity. { Point Ed = (dQ/dP)*(P/Q), so you need the value of the first derivative times the P/Q ratio.}
e) -0.6.
When the price of sugar was "low", consumers in the United States spent a total of $3 billion annually on its consumption. When the price doubled, consumer expenditures actually increased to $4 billion annually. This indicates that
e) None of the above.
The demand for good X has been estimated by Q xd = 6 - 2Px + 5Py. Suppose that good X sells at $3 per unit and good Y sells for $2 per unit. Calculate the own price elasticity.
d) -0.6.
Suppose demand is given by Q xd = 50 - 4Px + 6Py + Ax , where Px = $4, Py = $2, and Ax = $50. What is the quantity demanded of good x?
d) 72.
Suppose Q xd = 10,000 - 2 Px + 3 Py - 4.5M , where Px = $100, Py = $50, and M = $2,000. How much of good X is consumed?
d) 950 units.
The own-price elasticity of demand for apples is -1.2. If the price of apples falls by 5%, what will happen to the quantity of apples demanded?
d) It will increase 6%.
The demand for video recorders has been estimated to be Qv = 134 - 1.07Pf + 46Pm - 2.1Pv - 5I, where Qv is the quantity of video recorders, Pf denotes the price of video recorder film, Pm is the price of attending a movie, Pv is the price of video recorders, and I is income. Based on the estimated demand equation we can conclude:
a) video recorders are inferior goods.
If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross price-elasticity of apple sauce and pork chops at a pork chop price of $6?
a) -.1.1667.
Suppose demand is given by Q xd = 50 - 4Px + 6Py + Ax , where Px = $4, Py = $2, and Ax = $50. What is the advertising elasticity of demand for good x?
a) 1.12.
Assume that the price elasticity of demand is -2 for a certain firm's product. If the firm raises price, the firm's managers can expect total revenue to:
a) Decrease
Which of the following is a correct statement about the own-price elasticity of demand?
a) Demand tends to be more inelastic in the short-term than in the long-term. b) Demand tends to be more elastic as more substitutes are available. c) Demand tends to be more inelastic for goods that comprise a smaller share of a consumer's budget. d) All of the above.
Which of the following statements is incorrect?
a) If a firm decreases the price of its product, its total revenue will necessarily decrease. b) The own price elasticity of demand is constant at all points along a linear demand curve. c) As the price of X falls and we move down an individual's demand curve for X, the money income of the individual also changes. d) all of the above are incorrect.
When the price of sugar was "low", consumers in the U.S. spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures increased to $5 billion annually. This data indicates that:
a) The demand for sugar is inelastic.
If the absolute value of the own-price elasticity of steak is .4, a decrease in price will lead to:
a) a reduction in total revenue.
You are the manager of a supermarket, and know that the income elasticity of peanut butter is exactly -0.7. Due to the recession, you expect incomes to drop by 15% next year. How should you adjust your purchase of peanut butter?
a) buy 10.5% more peanut butter.
Assume that the price elasticity of demand is -0.75 for a certain firm's product. If the firm lowers price, the firm's managers can expect total revenue to
a) decrease
If the own price elasticity of demand is infinite in absolute value, then
a) demand is perfectly elastic.
The demand for which of the following commodities is likely to be more price inelastic?
a) food.
We would expect the own price elasticity of demand for food to be:
a) less elastic than the demand for cereal.
We would expect the demand for jeans to be:
a) more elastic than the demand for clothing.
Demand is more inelastic in the short-term because consumers:
b) have no time to find available substitutes.
The demand for food (a broad group) is more
b) inelastic than the demand for beef (specific commodity).
If there are few close substitutes for a good, demand tends to be relatively
b) inelastic.
If quantity demanded for sneakers falls by 10% when price increases 25% we know that the absolute value of the own-price elasticity of sneakers is:
b) 0.4.
The demand for good X has been estimated to be lnQ xd = 100 - 2.5 lnPX + 4 lnPY + lnM. The income elasticity of good X is
b) 1.
If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own-price elasticity at a price of $7?
b) 1.75.
If the income elasticity for lobster is .4, a 40% increase in income will lead to a:
b) 16% increase in demand for lobster.
You are the manager of a popular hat company. You know that the advertising elasticity of demand for your product is 0.25. How much will you have to increase advertising in order to increase demand by 5%?
b) 20%.
If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4% increase in the price of ketchup will lead to a:
b) 4.8% drop in quantity demanded of hamburgers.
If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2% increase in the price of ketchup will lead to a
b) 5% drop in demanded of hamburgers.
The demand for which of the following commodities is likely to be more inelastic among the alternatives?
b) Beverages.
As we move down along a linear demand curve, the price elasticity of demand becomes more
b) Inelastic
The own-price elasticity of demand for apples is -1.5. If the price of apples falls by 6%, what will happen to the quantity of apples demanded?
b) It will increase 9%.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, good X is
b) a normal good.
If the cross-price elasticity between good A & B is negative, we know the goods are:
b) complements.
When a demand curve is linear,
b) demand is elastic at high prices.
When a demand curve is linear
b) demand is inelastic at low prices.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, we know that the demand for good X is
b) inelastic.
Demand tends to be
b) more inelastic in the short-term than in the long-term.
Which of the following factors would not affect the own-price elasticity of a good?
b) price of an input.
Lemonade, a good with many close substitutes, should have an own-price elasticity that is:
b) relatively elastic.
Which of the following is not the important factor that affects the magnitude of the own price elasticity of demand?
b) supply of the good.
Since most consumers spend very little on salt, a small increase in the price of salt
b) will not reduce quantity demanded by very much.
Suppose Q xd = 10,000 - 2 Px + 3 Py - 4.5M , where Px = $100, Py = $50, and M = $2,000. What is the own-price elasticity of demand? {Need to compute Qx for calculation of Ed}
c) -.21.
The demand for good X is estimated to be Q xd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income and AX is the amount of advertising on X. Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units. Based on this information, the income elasticity of good X is
c) 0.82.
If the income elasticity for lobster is .6, a 25% increase in income will lead to a
c) 15% increase in demand for lobster.
If the demand function for a particular good is Q = 20 - 8P, then the price elasticity of demand (in absolute value) at a price of $1 is
c) 2/3.
If the demand function for a particular good is Q = 25 - 10P, then the price elasticity of demand (in absolute value) at a price of $1 is
c) 2/3.
You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is .15. How much will you have to increase advertising in order to increase demand by 10%? {Note: dA/A = (dQ/Q)/EQ,A) because EQ,A= (dQ/Q)/(dA/A)}
c) 66.67%.
Suppose the income elasticity for transportation is 1.8. Which of the following is an incorrect statement?
c) Expenditures on transportation will fall less rapidly than income falls.
A price elasticity of zero corresponds to a demand curve that is:
c) Vertical
Suppose the own-price elasticity of demand for good X is -0.5, and that the price of good X increases by 10%. We would expect the quantity demanded of good X to
c) decrease by 5%.
When the own price elasticity of good X is -3.5 then total revenue can be increased by
c) decreasing the price.
If apples have an own-price elasticity of -1.2 we know the demand is:
c) elastic.
Suppose the demand for a product is Q xd = 12 - 3lnPx then product x is
c) elastic.
The cross price elasticity of demand between goods X and Y is -3.5. If the price of X decreases by 7%, the quantity demanded of Y will:
c) increase by 24.5%.
Suppose the demand for good x is lnQ xd = 21 - .8 lnPx - 1.6 lnPy + 6.2 lnM + .4 lnAx . Then we know that the own-price elasticity for good x is:
c) inelastic.
Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:
c) infinite.
If the short-term own price elasticity for transportation is estimated to be -0.6, then long-term own price elasticity is expected to be
c) less than -0.6.
The demand for Cinnamon Toast Crunch brand cereal is
c) more elastic than the demand for cereal in general.
When the price of sugar was "low", consumers in the U.S. spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures remained at $3 billion annually. This data indicates that:
d) None of the above.
The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:
d) cross-price elasticity.
The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is:
d) inelastic.
