Fundamentals of Strategic Decision Making - Exam 1

Pataasin ang iyong marka sa homework at exams ngayon gamit ang Quizwiz!

The elasticity that shows the responsiveness of the demand for a good due to changes in the price of a related good is the

cross-price elasticity

As we move up along a linear demand curve, the price elasticity of demand becomes more

elastic

If apples have an own price elasticity of −1.2 we know the demand is

elastic

f the absolute value of the own price elasticity of demand is greater than 1, then demand is said to be

elastic

Economics

exists because of scarcity

Demand is more inelastic in the short term because consumers

have no time to find available substitutes

If the price of good X becomes lower, then the level of consumer surplus becomes

higher

If marginal benefits exceed marginal costs, it is profitable to

increase Q (quantity, output produced)

The value of the firm is the

present discounted value of all future profits

Consumer surplus is

the value consumers get from a good but do not pay for

Other things being held constant, the greater the price of a good

the lower the consumer surplus

Advertising can influence demand by altering tastes of consumers. This type of advertising is known as

persuasive advertising

Good Y is a complement to good X if an increase in the price of good Y leads to

a decrease in the demand for good X

If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is

0.4

Which of the following is true? Accounting costs generally understate economic costs, Accounting profits generally understate economic profits, In the absence of any opportunity costs, accounting profits are less than economic profits, Accounting costs generally overstate economic costs

Accounting costs generally understate economic costs

Which of the following is an incorrect statement about the own price elasticity of demand? Demand tends to be more inelastic in the short term than in the long term, Demand tends to be more elastic as more substitutes are available, Demand tends to be more inelastic for goods that comprise a smaller share of a consumer's budget, Demand tends to be more elastic if there are few substitutes available

Demand tends to be more elastic if there are few substitutes available

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

Expenditures on transportation will fall less rapidly than income falls

Which of the following is incorrect? Accounting profits generally overstate economic profits, Accounting profits do not take opportunity cost into account, Economic costs include not only the accounting costs but also the opportunity costs of the resources used in production, Managers should only be interested in accounting profits

Managers should only be interested in accounting profits

The market for oranges is in equilibrium. Now suppose that weather in Florida increases orange production and at the same time a new research shows that eating oranges reduces risk of heart disease. What will be the effect of these changes on the equilibrium price and quantity in orange market?

Quantity will increase, and effect on price is ambiguous

What is the effect of an increase in wages paid to workers employed in manufacturing bicycles?

Supply curve for bicycles shifts to the left

Suppose that your friend owns a coffee shop and seeks your advice on changing the price of coffee to increase total revenue. If you know that demand for coffee is unit elastic what advice will you give your friend?

To keep the price unchanged

Which of the following leads to a decrease in demand for mechanical pencils (a normal good)? an increase in incomes, a decrease in price of mechanical pencils, an increase in price of mechanical pencils, a decrease in price of lead pencils, which is a substitute for mechanical pencils

a decrease in price of lead pencils, which is a substitute for mechanical pencils

If good A is an inferior good, an increase in income leads to

a decrease in the demand for good A

Assume that hot dog and hot dog buns are complementary goods. If the price of hot dogs rises, all else constant, then this will cause

a decrease in the demand for hot dog buns

A change in income will not lead to

a movement along the demand curve

The maximum legal price that can be charged in a market is

a price ceiling

The minimum legal price that can be charged in a market is

a price floor

If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to

a reduction in total revenue

Good X is a normal good if an increase in income leads to

an increase in the demand for good X

Good X is an inferior good if a decrease in income leads to

an increase in the demand for good X

Suppose that good X is a substitute for good Y. Then an increase in the price of good Y leads to

an increase in the demand of good X

Which of the following can explain an increase in the demand for housing (a normal good)? a drop in housing prices, an increase in the population, a decrease in income, an improvement in technology

an increase in the population

An income elasticity less than zero tells us that the good is

an inferior good

Suppose good X is a normal good. Then a decrease in income would lead to

an inward shift of the demand curve

Which of the following are least likely to be substitutes? chicken and beef, cars and trucks, automobile and housing, automobile and gasoline

automobile and gasoline

The demand for which of the following commodities is likely to be most inelastic? soft drinks, beverages, cola drinks, Pepsi Cola

beverages

Generally when calculating profits as total revenue minus total costs, accounting profits are larger than economic profits because economists take into account

both explicit and implicit costs

If chocolate bars have a price elasticity of 0.1, then we can infer the chocolate bar

buyers have short time at hand and sellers should raise price to increase revenue

Which of the following are least likely to be complements? peanut butter and jelly, bread and butter, sports coats and dress slacks, cars and trucks

cars and trucks

If the cross-price elasticity between goods A and B is negative, we know the goods are

complements

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

decrease

The price elasticity of demand is −2.0 for a certain firm's product. If the firm raises price, the firm manager can expect total revenue to

decrease

When the own price elasticity of good X is −3.5, total revenue can be increased by

decreasing the price

Which of the following would not shift the demand for good A? drop in price of good A, drop in price of good B, consumer income, change in the level of advertising of good A

drop in price of good A

The demand for which of the following commodities is likely to be most price inelastic? food, hamburgers, Big Macs, sandwiches

food

Which of the following is an implicit cost to a firm that produces a good or service? labor costs, costs of operating production machinery, foregone profits of producing a different good or service, costs of renting or buying land for a production site

foregone profits of producing a different good or service

Which of the following is an implicit cost to a firm that produces a good or service? labor costs, costs of operating production machinery, foregone salary of working in the other job, costs of renting or buying land for a production site

foregone salary of working in the other job

Which of the following is an implicit cost of going to college? tuition, cost of books and supplies, room and board, foregone wages

foregone wages

Which of the following pairs of goods are probably complements? televisions and roller skates, frozen yogurt and ice cream, steak and chicken, hamburgers and hamburger buns

hamburgers and hamburger buns

Marginal benefits are the

incremental benefits of a decision

As we move down along a linear demand curve, the price elasticity of demand becomes more

inelastic

The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is

inelastic

The demand for food (a broad group) is more

inelastic than the demand for beef (specific commodity)

Advertising provides consumers with information about the underlying existence or quality of a product. These types of advertising messages are called

informative advertising

Managerial economics has little to say about day-to-day decisions, is valuable to the coordinator of a shelter for the homeless, is not relevant for managers of not-for-profit groups, is the study of how to get rich in the stock market.

is valuable to the coordinator of a shelter for the homeless

If A and B are complements, an increase in the price of good A would

lead to a decrease in demand for B

If A and B are substitute goods, a decrease in the price of good A would

lead to a decrease in demand for B

If A and B are complementary goods, a decrease in the price of good A would

lead to an increase in demand for B

If A and B are substitute goods, an increase in the price of good A would

lead to an increase in demand for B

We would expect the own price elasticity of demand for food to be

less elastic than the demand for cereal

The additional benefits that arise by using an additional unit of the managerial control variable is defined as the

marginal benefit

The optimal amount of studying is determined by comparing

marginal benefit and the marginal cost of studying

In order to maximize net benefits, firms should produce where

marginal benefits equal marginal costs

The additional cost incurred by using an additional unit of the managerial control variable is defined as the

marginal cost

The change in net benefits that arises from a one-unit change in quantity is the

marginal net benefits

The difference between marginal benefits and marginal costs is the

marginal net benefits

To an economist, maximizing profit is

maximizing the value of the firm

The demand for Cinnamon Toast Crunch brand cereal is

more elastic than the demand for cereal in general

The demand for women's clothing is, in general,

more elastic than the demand for clothing

We would expect the demand for jeans to be

more elastic than the demand for clothing

Demand tends to be

more inelastic in the short term than in the long term

All else being held constant, as additional firms enter an industry,

more output is available at each given price

In order to maximize net benefits, the managerial control variable should be used up to the point where

net marginal benefits equal zero

Suppose the firm achieves total revenue of $1,000 by selling 150 units, while facing total costs of $900. If the firm produces and sells 151 units, their total revenue is $1,005 and their total costs is $950. Should the firm produce and sell the extra unit?

no, since marginal profits are declining

Since most consumers spend very little on salt, a small increase in the price of salt will

not reduce quantity demanded by very much

Demand shifters do not include the

price of the good

If a shortage exists in a market, the natural tendency is for

price to increase

The law of supply states that, holding all else constant, as the price of a good falls,

quantity supplied falls

Non-fed ground beef is an inferior good. In economic booms, grocery managers should

reduce their orders of non-fed ground beef

Lemonade, a good with many close substitutes, should have an own price elasticity that is

relatively elastic

Graphically, a decrease in advertising will cause the demand curve to

shift leftward

For a wood furniture manufacturer, an increase in the cost of lumber will cause the supply curve to

shift to the left

Firms advertise in order to cause the demand for their products to

shift to the right

For a steel factory, a decrease in the cost of electricity to the plant will cause the supply curve to

shift to the right

Technological advances will cause the supply curve to

shift to the right

If consumers expect future prices to be higher,

stockpiling will happen when the products are durable in nature

If the cross-price elasticity between goods X and Y is positive, we know the goods are

substitutes

An inferior good is a good

that consumers purchase less of when their incomes are higher

Marginal benefit refers to

the additional benefits that arise by using an additional unit of the managerial control variables

If firms expect prices to be higher in the future and the product is not perishable, then

the current supply curve shifts to the left

All else being held constant, when number of buyers of soda drinks increase,

the demand curve shifts to the right and more output is demanded at each given price

When the price of corn was "low," consumers in the United States spent a total of $8 billion annually on its consumption. When the price halved, consumer expenditures actually decreased to $6 billion annually. This indicates that

the demand for corn is inelastic

When the price of sugar was "low," U.S. consumers 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

the demand for sugar is inelastic

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 purchases actually decreased to $2 billion annually. This indicates that

the demand for sugar is relatively inelastic

If marginal costs exceed marginal benefits, then

the firm should decrease its production level

The opportunity cost of receiving $10 in the future as opposed to getting that $10 today is

the foregone interest that could be earned if you had the money today

Other things being held constant, the lower the price of a good,

the greater the consumer surplus, the lower the producer surplus

Other things being held constant, the higher the price of a good,

the greater the producer surplus, the lower the consumer surplus

The elasticity that measures the responsiveness of consumer demand to changes in income is

the income elasticity

Changes in the price of good A lead to a change in

the quantity demanded of good A

The higher the interest rate

the smaller the present value of a future amount

Consider the market for bicycles (a normal good). All else being constant, when price of an input needed to make bicycles decreases,

the supply curve shifts to the right and more bicycles are available at each given price

Which of the following is the main goal of a continuing company? to maximize the value of the firm, to minimize costs, to improve product quality, to enhance service to its customers

to maximize the value of the firm

What is the main role of economic profits?

to signal where resources are most highly valued

Accounting profits are

total revenue minus total cost

Economic profits are

total revenue minus total opportunity cost

Each week Bill buys exactly 10 hot dogs regardless of their price. Bill's own price elasticity of demand for hot dogs in absolute value is

zero

Each week Bill buys exactly 7 bottles of cola regardless of its price. Bill's own price elasticity of demand for cola in absolute value is

zero


Kaugnay na mga set ng pag-aaral

Lesson 13 Late 20th Century True False Quiz

View Set

Physical Geology - Chapter 12 Test Bank

View Set

Chapters 7 and 8 and Lectures: Motivation Concepts and Applications

View Set

Chapter 25 The Industrial Revolution

View Set

Computer Network CH2 Review 8th Edition

View Set