Chapter 4 - Quiz

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

complements

If the demand for a product is In Qx d= 20 - In Px, then product x IS:

unitary elastic.

When marginal revenue is zero, demand will be:

unit elastic

Suppose Q%= 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?

-0.21

The demand for good X has been estimated by Q, = 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.

-0.6

The demand for good d= 100 - 2.5 In Px + 4 In Py + In M. The income elasticity of good X is:

1.0

The demand for good X has been estimated to be In Q," = 100 - 2.5 In Py + 4 In Py + In M. The cross-price elasticity of demand between goods X and Y is:

4.0

Suppose the own price elasticity of demand for good X is -0.25, and the quantity of good X increases by 5 percent. What would you expect to happen to the total expenditures on good X?

Decrease

When marginal revenue is negative, demand is:

Inelastic

The management of Local Cinema has estimated the monthly demand for tickets to be In Q = 22,328 - 0.41 In P + 0.5 In M - 0.33 In A + 100 In PDVD, where Q= quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and PDVD = price of a DVD rental. It is known that P= $5.50, M = $9,000, A = $900, and Pvcr = $3.00. Based on the information given, which of the following statements is false?

Movies are complements for DVD rentals.

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:

decrease

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

When marginal revenue is positive for a linear (inverse) demand function, decreases in output will cause total revenues to:

decrease.

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

decreasing the price

A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: In M= 14.666 + .021 In C - 0.036 In r, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank deposits. Based on this study, a 5 percent increase in interest rates will cause the demand for money to:

drop by 0.18 percent

When marginal revenue is positive, demand is:

elastic

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

inelastic

If there are few close substitutes for a good, demand tends to be relatively:

inelastic

Suppose the demand for good x is In Q,= 21 - 0.8 In Px-1.6 In Pj + 6.2 In M + 0.4 In Ax. Then we know that the own price elasticity for good x is:

inelastic.

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

not reduce quantity demanded by very much.

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

relatively elastic

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.

A price elasticity of zero corresponds to a demand curve that is:

vertical