Midterm- Ch 3 Test Bank

B

18) Demand is more inelastic in the short-term because consumers: a) are impatient. b) have no time to find available substitutes. c) are present-oriented. d) none of the above.

B

21) If the cross-price elasticity between good A & B is negative, we know the goods are: a) inferior goods. b) complements. c) inelastic. d) substitutes.

A

1) 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 b) Increase c) Remain constant d) Either increase or remain constant depending upon the size of the price increase.

D

27) 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. b) 0.38. c) 1.92. d) 0.52.

C

55) 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 a) 8. b) 2. c) 2/3. d) 1/8. e) none of the above.

E

56) 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 a) the demand for sugar is elastic. b) the demand curve for sugar is upward sloping. c) sugar is a Giffen good. d) sugar prices violate the law of demand. e) None of the above.

A

57) The demand for which of the following commodities is likely to be more price inelastic? a) food. b) hamburgers. c) Big Mac's. d) sandwiches.

C

58) 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 a) 8. b) 2. c) 2/3. d) 1/8. e) none of the above.

C

12) Demand is perfectly elastic when the absolute value of the own price elasticity of demand is: a) zero. b) one. c) infinite. d) unknown.

B

30) 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: a) 4. b) 0.25. c) 0.5. d) None of the above.

B

22) If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4% increase in the price of ketchup will lead to a: a) 4.8% drop in quantity demanded of ketchup. b) 4.8% drop in quantity demanded of hamburgers. c) 4.8% increase in quantity demanded of ketchup. d) 4.8% increase in quantity demanded of hamburgers.

A

10) 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. b) an increase in total revenue. c) no change in total revenue. d) none of the above.

B

11) 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? a) 0.57. b) 1.75. c) 0.02. d) 1.24.

C

13) 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} a) -2.34. b) -.78. c) -.21. d) -1.21.

D

14) 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? a) 100 units. b) 500 units. c) 1,100 units. d) 950 units.

B

15) Which of the following factors would not affect the own-price elasticity of a good? a) time. b) price of an input. c) available substitutes. d) expenditure share.

B

16) Lemonade, a good with many close substitutes, should have an own-price elasticity that is: a) unitary. b) relatively elastic. c) relatively inelastic. d) perfectly inelastic.

A

17) We would expect the demand for jeans to be: a) more elastic than the demand for clothing. b) less elastic than the demand for clothing. c) the same as the demand for clothing. d) none of the above.

A

19) We would expect the own price elasticity of demand for food to be: a) less elastic than the demand for cereal. b) more elastic than the demand for cereal. c) have the same elasticity as soap. d) perfectly inelastic.

C

2) A price elasticity of zero corresponds to a demand curve that is: a) Horizontal b) Downward sloping with a slope always equal to 1. c) Vertical d) Either vertical or horizontal.

D

20) The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the: a) own-price elasticity. b) income elasticity. c) log-linear elasticity. d) cross-price elasticity.

A

23) 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. b) 2.71. c) 0.42. d) -.857.

B

24) If the income elasticity for lobster is .4, a 40% increase in income will lead to a: a) 10% drop in demand for lobster. b) 16% increase in demand for lobster. c) 20% increase in demand for lobster. d) 4% increase in demand for lobster.

A

25) 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. b) buy 2.14% more peanut butter. c) buy 6.2% less peanut butter. d) buy 9.8% less peanut butter.

A

26) 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? a) 96. b) 50. c) 46. d) 72.

C

28) 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)} a) .02%. b) 38.6%. c) 66.67%. d) 4.3%.

C

29) 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: a) unitary. b) elastic. c) inelastic. d) Indeterminable.

B

3) As we move down along a linear demand curve, the price elasticity of demand becomes more a) Elastic b) Inelastic c) Log-linear d) Variable

A

31) 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. b) video recorder film is a substitute for video recorders. c) the demand for video recorders is inelastic. d) none of the above.

C

33) 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 a) increase by 5%. b) increase by 20%. c) decrease by 5%. d) decrease by 20%.

D

34) 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? a) 61500. b) 61300. c) 61300 - 4PX. d) 61500 - 4PX.

B

35) 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 a) elastic. b) inelastic. c) unitary elastic. d) none of the above.

C

36) 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 a) 0.008. b) 0.082. c) 0.82. d) 8.2.

B

37) 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 a) an inferior good. b) a normal good. c) a Giffen good. d) a regular good.

B

38) When a demand curve is linear, a) the elasticity is the same as the slope of the demand curve. b) demand is elastic at high prices. c) demand is unitary elastic at low prices. d) the elasticity is constant at all prices.

B

39) Which of the following is not the important factor that affects the magnitude of the own price elasticity of demand? a) available substitutes. b) supply of the good. c) time. d) expenditure share.

C

4) Suppose the demand for a product is Q xd = 5000 Px-1 then this Power function, own price elasticity for product x is a) Elastic. b) Inelastic. c) Unitary elastic. d) Cannot be determined without more information.

B

40) If there are few close substitutes for a good, demand tends to be relatively a) elastic. b) inelastic. c) unitary elastic. d) none of the above.

B

41) The demand for food (a broad group) is more a) elastic than the demand for beef (specific commodity). b) inelastic than the demand for beef (specific commodity). c) sensitive to price changes than the demand for beef. d) responsive to price change than the demand for beef.

B

42) Demand tends to be a) more elastic in the short-term than in the long-term. b) more inelastic in the short-term than in the long-term. c) equally elastic in the short-term and in the long-term. d) none of the above.

C

43) 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 a) -0.6. b) greater than -0.6. c) less than -0.6. d) none of the above.

B

44) Since most consumers spend very little on salt, a small increase in the price of salt a) will reduce quantity demanded by a large amount. b) will not reduce quantity demanded by very much. c) will not change quantity demanded. d) will increase quantity demanded by a small amount.

C

45) Suppose the income elasticity for transportation is 1.8. Which of the following is an incorrect statement? a) Transportation is a normal good. b) Expenditures on transportation grow more rapidly than income grows. c) Expenditures on transportation will fall less rapidly than income falls. d) Whenever the income increases by 1%, the expenditure on transportation increases by 1.8%.

B

46) 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 a) 4. b) 1. c) 2 . d) -2.5.

C

47) When the own price elasticity of good X is -3.5 then total revenue can be increased by a) increasing the price. b) decreasing the quantity supplied. c) decreasing the price. d) none of the above.

A

48) 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. b) The demand curve for sugar is upward sloping. c) The quantity demanded of sugar increased. d) b and c.

D

49) 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.

E

5) 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.} a) -0.2. b) -0.3. c) -0.4. d) -0.5. e) -0.6.

B

50) The demand for which of the following commodities is likely to be more inelastic among the alternatives? a) Soft drinks. b) Beverages. c) Cola drinks. d) Pepsi Cola.

D

51) 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: a) The demand for sugar is inelastic. b) The demand curve for sugar is upward sloping. c) The quantity demanded of sugar increased. d) None of the above.

A

52) 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. b) An economic downturn will increase demand for X. c) A 20% increase in income would increase demand for X by 14%. d) A 15% increase in income would increase demand for X by 10.5%. e) a and b are correct.

C

53) 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: a) decrease by 24.5%. b) decrease by 2.45%. c) increase by 24.5%. d) increase by 2.45%. e) remain unchanged.

B

54) The short run response of quantity demanded to a change in price is usually: a) The same as the long run response. b) Less than the long run response. c) Greater than the long run response. d) None of the above.

A

59) 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 b) increase c) remain constant d) either increase or remain constant depending upon the size of the price decrease.

D

6) 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? a) It will increase 5%. b) It will fall 4.3%. c) It will increase 4.2%. d) It will increase 6%.

C

60) Suppose the demand for a product is Q xd = 12 - 3lnPx then product x is a) inelastic. b) unitary elastic. c) elastic. d) Cannot be determined without more information.

D

61) 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. a) -0.3. b) -0.4. c) -0.5. d) -0.6.

B

62) 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? a) It will increase 4%. b) It will increase 9%. c) It will fall 4%. d) It will fall 6%.

A

63) 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 b) 0.7 c) 2.3 d) 3.3

B

64) If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2% increase in the price of ketchup will lead to a a) 5% drop in quantity demanded of ketchup. b) 5% drop in demanded of hamburgers. c) 5% increase in quantity demanded of ketchup. d) 5% increase in demanded of hamburgers.

C

65) If the income elasticity for lobster is .6, a 25% increase in income will lead to a a) 6% drop in demand for lobster. b) 2.4% increase in demand for lobster. c) 15% increase in demand for lobster. d) 42% increase in demand for lobster.

B

66) 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%? a). 05%. b) 20%. c) 25%. d) 1.25%.

A

67) If the own price elasticity of demand is infinite in absolute value, then a) demand is perfectly elastic. b) the demand curve is vertical. c) consumers do not respond at all to changes in price. d) Both b and c.

B

68) When a demand curve is linear, a) demand is elastic at low prices. b) demand is inelastic at low prices. c) demand is unitary elastic at low prices. d) the elasticity is constant at all prices.

C

69) The demand for Cinnamon Toast Crunch brand cereal is a) equally elastic to the demand for cereal in general. b) less elastic than the demand for cereal in general. c) more elastic than the demand for cereal in general. d) none of the above.

C

7) If apples have an own-price elasticity of -1.2 we know the demand is: a) unitary. b) indeterminate. c) elastic. d) inelastic.

D

70) 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.

B

8) 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: a) 2.5. b) 0.4. c) 2. d) 0.27.

D

9) The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is: a) elastic. b) unitary. c) falling. d) inelastic.

A

The elasticity of variable G with respect to variable S is defined as 32) a) the percentage change in variable G that results from a given percentage change in variable S. b) the percentage change in variable G that results from a given change in variable S. c) the change in variable G that results from a given percentage change in variable S. d) the change in variable G that results from a given change in variable S.