Managerial Economics Test 2

Demand is more elastic for luxury goods True or False

True

When the price of movie tickets in a certain town was reduced, the movie-theaters' revenues did not change. This suggest that the demand for movie tickets in that town has a price-elasticity coefficient of a) 1 b) greater than 1 c) .5 d) zero

a) 1

Which is correct? a) If decrease in the price of good Y results in decrease in demand for good X, the two goods are substitutes b) If increase in the price of good Y results in decrease in demand for good X, the two goods are complements c) Cross price elasticity of demand measures the percentage change in demanded for good X when price of good X increases d) all of the above are correct

a) If decrease in the price of good Y results in the decrease in demand for good X, the two goods are substitutes

Which of the following pairs of goods would be expected to have a positive cross-price elasticity of demand? a) coffee and tea b) gasoline and large SUVs c) tennis racquets and tennis balls d) hot dogs and hot dog buns

a) coffee and tea

When the price of a product is increased 10%, the quantity demanded decreases 15% in this range of prices, demand for this product is a) elastic b) inelastic c) cross-elastic d) unitary elastic

a) elastic

You are the sales manager for a software company and have been informed that the price elasticity of demand for your most popular software is less than 1. To increase TR you should a) increase the price of the software b) decrease the price of the software c) hold the price of the software constant d) increase the supply of the software

a) increase the price of the software

If the cross-price elasticity of demand between two goods is positive, we can assume that the two goods in question are a) substitutes b) complements c) inferior goods d) totally unrelated to one another

a) substitutes

Cross Price elasticity of demand for good X can be defined as consumers' responsiveness to change in price of a related good Y a) true b) false

a) true

A car dealer wants to get rid of last year's model. Assume the dealer knows from past experience that the price elasticity of demand for cars is unitary (= 1). If the price of the cars is currently $20,000 and the dealer wants to increase the quantity demanded from 30 units to 50 units, what must the new price be if the dealer is to sell the 20 additional cars? a) $10,000 b) $12,000 c) $16,000 d) $18,000

b) $12,000

Suppose a consumer's income increases from $30,000 to $36,000. As a result, the consumer increases her purchase of compact disks (CDs) form 25 CDs to 30 CDs. What is the consumer's income elasticity of demand for CDs? a) 0.5 b) 1.0 c) 1.5 d) 2.0

b) 1.0

Suppose that as the price of Y falls rom $2 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demanded, using the Arc elasticity formula is a) 4.1 b) 1.4 c) 1.9 d) 2

b) 1.4

Calculate the point price elasticity for the demand equation ( Q = 5000 - 50P), when the price of the product is $75 a) 1 b) 3 c) 0.25 d) cannot be determined

b) 3

The price elasticity of demand for a popular sporting even is 2. If the price of a ticket to this event increases by 10%, the quantity of tickets demanded will a) decrease by 5% b) decrease by 20% c) decrease by 10% d) decrease by .2%

b) decrease by 20%

If 100 shirts are sold when unit price is $10, while 75 shirts are sold when the hit price is $15, one can conclude that in this price range a) demand for shirts is elastic b) demand for the shirts is inelastic c) demand for shirts has shifted to the left d) consumers are quite sensitive to changes in the price

b) demand for shirts is inelastic

You are the newly appointed sales manager of the Rock Record Company and have been charged with the task of increasing revenues. Your economic consultants have informed you that at present price sand output levels, price elasticity of demand for your product is less than one. You should a) decrease prices b) increase prices c) hold prices constant and increase supply d) cut advertising expenditures to save money

b) increase prices

Chuck Grim has a price elasticity of demand for beer of 1.2. Suppose that the price of beer is increased by 10%. What will happen to the total amount Chuck spends on beer? a) it will not change b) it will decrease by more than 10% c) it will increase by more than 10% d) it is impossible to tell

b) it will decrease by more than 10%

The higher proportion of income, demand is ____elastic a) less b) more c) both a & b d) none of the above

b) more

The basic formula for the price elasticity of demand coefficient is: a) absolute decline in quantity demanded + absolute increase in price b) percentage change in quantity demanded / percentage change in price c) absolute decline in price - absolute increase in quantity demanded d) percentage change in price / percentage change in quantity demand

b) percentage change in quantity demanded / percentage change in price

How would the following changes in price affect TR a) when price falls and demand is inelastic, revenue increases b) when price falls and demand is inelastic, revenue decreases c) when price falls and demand is inelastic, revenue does not change d) none of the above

b) when price falls and demand is inelastic, revenue decreases

Calculate the point price elasticity for the demand equation ( Q = 5000 - 50P), when the price of the product is $25 a) 1 b) 3 c) 0.33 d) cannot be determined

c) .33

Block's sells 500 bottles of perfume a month when the price is $7 a huge increase in resource costs forces Block's to raise price to $9 and the firm only manes to sell about 460 bottles of perfume. The price elasticity of demand, using the Arc elasticity formula is a) .33 and elastic b) 3.0 and elastic c) .33 and inelastic d) 3.0 and elastic

c) .33 and inelastic

The price elf season tickets to a perfuming arts theater decreases by 3%. As a result, the quantity demanded increases by 6%. The price elasticity of demand for season ticks is a) .5 b) 9 c) 2 d) 18

c) 2

The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16% increase in sales implies a ____% _____ in price a) 20% increase b)80% decrease c) 20% decrease d) none of the above

c) 20% decrease

If the price elasticity of demand for a product is equal to 0.5, then a 10% decrease in price will increase quantity demand by: a) 20% b) .5% c) 5% d) .05%

c) 5%

Demand is said to be inelastic when a) an increase in price results in a reduction in TR b) a reduction in price results in an increase in TR c) a reduction in price results in a decrease in TR d) the elasticity coefficient exceeds one

c) a reduction in price results in a decrease in TR

If demand for farm crops is inelastic, a good harvest will cause farm revenues to: a) increase because of the increase int eh quantity that farmers can sell b) increase because of a downward movement along the supply curve, encouraging an increase in demand c) decrease because of a percentage fall in price greater than the percentage increase in quantity sold d) remain unchanged, because the increase in quantity that can be sold will be matched by and equal decrease in price

c) decrease because of a percentage fall in price greater than the percentage increase in quantity sold

A government wants to increase the taxes on cigarettes to increase tax revenue. the is tax would only be effective in reassign new tax revenues if the price elasticity of demand is a) unity B) elastic c) inelastic d) perfectly elastic

c) inelastic

Which of the following is not the determinant of elasticity of demand a) substitutability b) proportion of income c) level of technology d) time

c) level of technology

The price elasticity of demand measures a) steepness ro slope of a demand curve b) absolute changes in quantity demanded and price c) responsiveness of quantity demanded to a change in price d) Sensitivity of price to changes in demand

c) responsiveness of quantity demanded to a change in price

When the price of candy bars decreased from $.55 to $.45 the quantity demanded changed from 19,000 per day to 21,000 per day. In this price range, the price-ealsticity coefficient (based on the Arc elasticity formula) for candy is: a) 1 b) 2 c) .2 d) .5

d) .5

Which is incorrect? a) Good X is normal if demand for good X moves in the same direction as a change in income b) If demand for good X moves in the same direction as change in income, then good X is a normal good c) If income elasticity of demand for product X is positive, but less than 1, the good X is a necessity d) If income elasticity of demand is negative, the good in question is a normal good

d) If income elasticity of demand is negative, the good in question is a normal good

Hot dogs and hot dog buns would be expected to have: a) positive income elasticity of demand with respect to each other b) negative income elasticity of demand with respect to each other c) a positive cross-pirce elasticity of demand d) a negative cross-pirce elasticity of demand

d) a negative cross-price elasticity of demand

Which is the determinant of elasticity of demand a) substitutability b) luxuries vs. necessities c) time d) all of the above

d) all of the above

Which of the following is correct? (Ed is elasticity of demand) a) if Ed > 1 demand is elastic b) if Ed = 1 demand is unit elastic c) if Ed < 1 demand is inelastic d) all of the able are correct

d) all of the above are correct

The price elasticity of demand increases with the length of the period considered because: a) consumer' income will increase over time b) the demand curve will shift right as time passes c) all prices will increase over time d) consumers' will be better able to find substitutes

d) consumers will be better able to find substitutes

A 4% reduction in the price of a product has 0 effect on the dollar amount of consumer expenditure (revenue) on the product. The price elasticity of demand is: a) zero b) greater than zero c) greater than 0, but less than 1 d) equal to 1

d) equal to 1

If the price-elasticty coefficient for a good is .75, the demand for that good is described as a) normal b) elastic c) inferior d) inelastic

d) inelastic

If the price elasticity of demand for orange juice is 0.8, then a reduction in the price of orange juice will cause buyers to buy a) fewer bottles of orange juice, and their total spending on orange juice will decrease b) fewer bottles of orange juice, but their total spending on orange juice will increase c) more bottles of orange juice, and their total spending on orange juice will increase d) more bottles of orange juice, but their total spending on orange juice will decrease

d) more bottles of orange juice, but their total spending on orange juice will decrease