MGE302 ch.4
Pt increases by 1 percent, Qdt will decrease by 5 percent.
Edt = - 5. This means that if
The ARC-elasticity (midpoints formula) of demand is ½ or .50.
FarAwayDrive Inc. has recently increased the price from $4 to $6. In response to this increase in price, sales decreased from 2,200 to 1,800 units. If no other information concerning the demand is available, which of the following is true about the sensitivity of demand (using the ARC or midpoints formula) for FarAwayDrive's golf balls?
higher than
The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product.
An increase in the price of snowboards
Assume D1 represents the current demand curve for skis. Which of the following would most likely cause D1 to shift to D2?
Pyrotex will increase its revenues by decreasing the price of fireworks.
Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1.
Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 -25P + 4I +10PA-15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?
Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
skin care products are normal goods.
Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then
one.
At the midpoint of a linear demand curve, the elasticity of demand is
growth
BaseBall Inc. is a leader in the industry for baseball bats. If new firms enter the industry and BaseBall Inc. experiences a fall in market share, we can say that the product of the company is in the ______ phase.
the quantity of fast food consumed decreases as income increases.
Fast food is believed to be an inferior good. This means that
Ed > 1.
If the demand for movie tickets is elastic, then
products A and B are substitutes.
If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then
Demand Estimation Techniques
Interviews, price experimentation, statistical analysis
elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
Let Edt= -2. This implies that the demand for movie tickets is
the price of the product.
Price elasticity is defined as the change in quantity demanded relative to a change in
the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
Sales of shampoo by CleanHair, Inc., have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that
excluded variables are correlated with explanatory variables that are included in the analysis.
The omitted-variable problem in statistical analysis occurs when
horizontal, Ed = infinity.
The shape of a perfectly elastic demand curve is
vertical, Ed = 0.
The shape of a perfectly inelastic demand curve is
The demand facing individual firms tend to be more price-elastic than those for the entire industry.
Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?
There is no uniform result as the demand will differ, depending on whether customers anticipate that a price change is permanent or temporary.
Which of the following is a limitation of demand estimation through price experimentation?
Curves (2) and (3) have constant price elasticity.
Which of the following is true of the demand curves shown below?
Determinants of Price Elasticity of Demand
availability of close substitutes, size of good in customer budget, time horizon of customer adjustment
Product Life Cycle
introduction, growth, maturity, decline
network effects
the value of a product or service for an individual user increases with the number of total users
compliments
two goods for which an increase in the price of one leads to a decrease in the demand for the other
substitutes
two goods for which an increase in the price of one leads to an increase in the demand for the other
