Econ 3203

Law of demand

The quantity of a good consumers are willing and able to purchase increases (decreases) as the price falls (rises).

greater than 1

elastic

Caviar and champagne are complements. Recently pollution has been a problem in the Volga River, where much of the world's caviar originates. The sturgeon that live in these waters are laying fewer eggs than before. Show this phenomenon graphically, and explain its effects on the market for caviar and the market for champagne.

fewer eggs = shift supply in then champagne demand shifts in

Law of supply

As the price of a good rises (falls), the quantity supplied of the good rises (falls), holding other factors affecting supply constant.

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: A. 2.5. B. 0.4. C. 2.0. D. 0.27.

B. 0.4.

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

B. 1.75

If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead to a: A. 10 percent drop in demand for lobster. B. 16 percent increase in demand for lobster. C. 20 percent increase in demand for lobster. D. 4 percent increase in demand for lobster.

B. 16 percent increase in demand for lobster.

. Demand is perfectly elastic when the absolute value of the own price elasticity of demand is: A. zero. B. one. C. infinite. D. unknown.

C. infinite.

You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly −0.7. Due to the economic recession, you expect incomes to drop by 15 percent next year. How should you adjust your purchase of peanut butter? A. Buy 10.5 percent more peanut butter. B. Buy 2.14 percent more peanut butter. C. Buy 6.2 percent less peanut butter. D. Buy 9.8 percent less peanut butter

A. Buy 10.5 percent more peanut butter.

Which of the following would NOT shift the demand for good A? A. Drop in price of good A B. Drop in price of good B C. Consumer income D. Change in the level of advertising of good A

A. Drop in price of good A

Which of the following is a linear demand function? A. Qxd = 0 + XPX + YPY + MM + HH B. Qxd = PXX PYY MM HH C. Qxd = 0 + XPX2 + YPY2 + MM2 + MH2 D. Qxd = +X log PX +Y log PY + M log M + M log H

A. Qxd = 0 + XPX + YPY + MM + HH

A change in income will NOT lead to: A. a movement along the demand curve. B. a leftward shift of the demand curve. C. a rightward shift of the demand curve. D. All of the statements associated with the question are correct.

A. a movement along the demand curve.

The law of demand states that, holding all else constant: A. as price falls, demand will fall also. B. as price rises, demand will also rise. C. price has no effect on quantity demanded. D. as price falls, quantity demanded rises.

D. as price falls, quantity demanded rises.

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If ay is positive, then: A. goods y and x are complements. B. goods y and x are inferior goods. C. goods y and x are normal goods. D. goods y and x are substitutes.

D. goods y and x are substitutes.

less than one

inelastic

If the absolute value of the own price elasticity of steak is 0.4, 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 preceding statements is correct.

A. a reduction in total revenue.

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.

A. decrease.

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. From the law of demand we know that ax will be: A. less than zero. B. greater than zero. C. zero. D. None of the statements associated with this question are correct.

A. less than zero.

Good X is a normal good, and its demand is given by Qxd = 0 + XPX + YPY + MM + HH. Then we know that: A. H > 0. B. X > 0. C. Y > 0. D. M > 0

D. M > 0

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. neither more elastic, less elastic, nor the same elasticity as that of the demand for clothing

A. more elastic than the demand for clothing.

In a competitive market, the market demand is Qd = 60 − 6P and the market supply is Qs = 4P. A price ceiling of $3 will result in a: A. shortage of 30 units. B. shortage of 15 units. C. surplus of 30 units. D. surplus of 12 units.

A. shortage of 30 units

If apples have an own price elasticity of −1.2 we know the demand is: A. unitary. B. indeterminate. C. elastic. D. inelastic.

C. elastic.

Which of the following can explain an increase in the demand for housing in retirement communities? A. A drop in real estate prices B. An increase in the population of the elderly C. A drop in the average age of retirees D. Mandatory government legislation

B. An increase in the population of the elderly

If good A is an inferior good, an increase in income leads to: A. a decrease in the demand for good B. B. a decrease in the demand for good A. C. an increase in the demand for good A. D. no change in the quantity demanded for good A.

B. a decrease in the demand for good A

Suppose the demand for good X is given by Qdx = 10 + axPx + ayPy + aMM. If aM is negative, then good y is: A. a normal good. B. an inferior good. C. a complement. D. a substitute.

B. an inferior good.

If the cross-price elasticity between goods A and B is negative, we know the goods are: A. inferior goods. B. complements. C. inelastic. D. substitutes.

B. complements.

The buyer side of the market is known as the: A. income side. B. demand side. C. supply side. D. seller side

B. demand side.

You are the manager of a popular shoe company. You know that the advertising elasticity of demand for your product is 0.15. How much will you have to increase advertising in order to increase demand by 10 percent? A. 0.02 percent B. 38.6 percent C. 66.7 percent D. 4.3 percent

C. 66.7 percent

In a competitive market, the market demand is Qd = 60 − 6P and the market supply is Qs = 4P. The full economic price under a price ceiling of $3 is: A. 6. B. 7. C. 8. D. 9.

C. 8.

The demand curve for a good is horizontal when it is: A. a perfectly inelastic good. B. a unitary elastic good. C. a perfectly elastic good. D. an inferior good.

C. a perfectly elastic good.

. Persuasive advertising influences demand by: A. providing information about the availability of a product. B. offering reduced prices for the product. C. altering the underlying tastes of consumers. D. None of the statements are correct.

C. altering the underlying tastes of consumers.

An income elasticity less than zero tells us that the good is: A. a normal good. B. a Giffen good. C. an inferior good. D. an inelastic good.

C. an inferior good.

The demand function recognizes that the quantity of a good consumed depends on: A. the prices of other goods only. B. price and supply shifters. C. demand shifters and price. D. demand shifters only.

C. demand shifters and price.

If A and B are complements, an increase in the price of good A would: A. have no effect on the quantity demanded of B. B. lead to an increase in demand for B. C. lead to a decrease in demand for B. D. None of the statements associated with this question are correct

C. lead to a decrease in demand for B.

If the short-term own price elasticity for transportation is estimated to be −0.6, then longterm own price elasticity is expected to be: A. −0.6. B. greater than −0.6. C. less than −0.6. D. neither greater than, less than, nor equal to −0.6

C. less than −0.6.

Changes in the price of good A lead to a change in: A. demand for good A. B. demand for good B. C. the quantity demanded for good A. D. the quantity demanded for good B.

C. the quantity demanded for good A.

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

C. vertical.

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? A. −2.34 B. −0.78 C. −0.21 D. −1.21

C. −0.21

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

D. 0.52

The own price elasticity of demand for apples is −1.2. If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded? A. It will increase 5 percent. B. It will fall 4.3 percent. C. It will increase 4.2 percent. D. It will increase 6 percent.

D. It will increase 6 percent.

Suppose the demand for good X is given by Qdx = 10 − 2Px + Py + M. The price of good X is $1, the price of good Y is $10, and income is $100. Given these prices and income, how much of good X will be purchased? A. 115 B. 515 C. 1,000 D. None of the statements associated with this question are correct.

D. None of the statements associated with this question are correct.

The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is: A. elastic. B. unitary. C. falling. D. inelastic.

D. inelastic.

Graphically, a decrease in advertising will cause the demand curve to: A. become steeper. B. shift rightward. C. become flatter. D. shift leftward.

D. shift leftward.

Other things held constant, the greater the price of a good: A. the lower the demand. B. the higher the demand. C. the greater the consumer surplus. D. the lower the consumer surplus.

D. the lower the consumer surplus.

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. A. −0.2 B. −0.3 C. −0.5 D. −0.6

D. −0.6