Managerial Economics & Business Strategy Michael Baye 9th Edition- Test Bank
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Sample Test
Chapter 03
Quantitative Demand Analysis
Multiple Choice Questions
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.
Answer: A
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
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.
Answer: C
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
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.
Answer: B
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
4. If
the demand for a product is Q xd =
10 − lnPx, then product x is:
A. elastic.
B. inelastic.
C.unitary elastic.
D. Cannot be determined without more information.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
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.
A. −0.2
B. −0.3
C. −0.5
D.−0.6
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
6. 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.
Answer: D
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
7. If
apples have an ownprice elasticity of −1.2 we know the demand is:
A. unitary.
B. indeterminate.
C.elastic.
D. inelastic.
Answer: C
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
8. 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.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
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.
Answer: D
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
10.
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.
Answer: A
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 1 Easy
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
Answer: B
Learning Objective: 03-05
Topic: The Elasticity Concept
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 3 Hard
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.
Answer: C
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 1 Easy
13.
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.
Answer: C
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 1 Easy
14.
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
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
15.
Suppose Q xd =
10,000 − 2 Px + 3 Py− 4.5M, where Px =
$100, Py = $50, and M = $2,000. Then good X has a demand which is:
A. elastic.
B.inelastic.
C. unitary.
D. neither elastic, inelastic, nor unitary elastic.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
16.
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
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
17.
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
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 02 Medium
18.
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.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
19.
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.
Answer: A
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
20.
Demand is more inelastic in the shortterm because consumers:
A. are impatient.
B.have no time to find available substitutes.
C. are present-oriented.
D. None of the preceding statements is correct.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
21.
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. the same as that for soap.
D. perfectly inelastic.
Answer: A
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
22.
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.
Answer: D
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
23.
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.
Answer: B
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
24.
If the cross-price elasticity between ketchup and hamburgers is
−1.2, a 4 percent increase in the price of ketchup will lead to a 4.8 percent:
A. drop in quantity demanded of ketchup.
B.drop in quantity demanded of hamburgers.
C. increase in quantity demanded of ketchup.
D. increase in quantity demanded of hamburgers.
Answer: B
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
25.
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-priceelasticity of apple sauce and pork chops at a pork chop price of $6?
A. −1.17
B. 2.71
C. 0.42
D.−0.86
Answer: D
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
26.
Suppose the demand function is Q xd =
100 − 8Px + 6Py – M. If Px =
$4, Py = $2, and M = $10, what is the cross-price elasticity of
good x with respect to the price of good y?
A.0.17
B. 0.38
C. 0.21
D. 0.04
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
27.
The elasticity that measures the responsiveness of consumer
demand to changes in income is the:
A.income elasticity.
B. own price elasticity.
C. cross-price elasticity.
D. neither the income elasticity, the own price elasticity, nor the
cross-price elasticity.
Answer: A
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
28.
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.
Answer: C
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
29.
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.
Answer: B
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
30.
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.
Answer: A
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
31.
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
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
32.
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
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
33.
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
Answer: C
Learning Objective: 03-01
Topic: Other Elasticities
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
34.
Suppose the demand for good x is lnQxd =
21 − 0.8 lnPx− 1.6 ln Py + 6.2 ln M + 0.4
ln Ax. Then we know goods x and y are:
A. substitutes.
B.complements.
C. normal goods.
D. inferior goods.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
35.
Suppose the demand for good x is ln Qxd =
21 − 0.8 ln Px− 1.6 ln Py + 6.2 ln M + 0.4
ln Ax. Then we know good x is:
A. an inferior good.
B. an elastic good.
C.a normal good.
D. a Giffen good.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
36.
Suppose the demand for good x is ln Qxd =
21 − 0.8 ln Px− 1.6 ln Py + 6.2 ln M + 0.4
ln Ax. Then we know that the own price elasticity for good x is:
A. unitary.
B. elastic.
C.inelastic.
D. It cannot be calculated from the existing information.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
37.
Suppose the demand function is given by Qxd =
8Px0.5 Py0.25 M0.12 H.
Then the cross-price elasticity between goods x and y is:
A. 4.00.
B.0.25.
C. 0.50.
D. 8.33.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
38.
Suppose the demand function is given by Qxd =
8Px0.5 Py0.25 M0.12 H.
Then good x is:
A.a normal good.
B. an inferior good.
C. a complement for good y.
D. perfectly inelastic.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
39.
Suppose the demand function is given by Qxd =
8Px0.5 Py0.25 M0.12 H.
Then the demand for good x is:
A.inelastic.
B. unitary.
C. elastic.
D. perfectly elastic.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
40.
The statistical analysis of economic phenomena is defined as:
A.econometrics.
B. variance.
C. confidence intervals.
D. standard deviation.
Answer: A
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
41.
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. the demand for video recorders is neither inferior nor inelastic, and
video recorder film is not a substitute for video recorders.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
42.
Which of the following is used to determine the statistical
significance of a regression coefficient?
A.t-statistic
B. F-statistic
C. R-square
D. Adjusted R-square
Answer: A
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
43.
Which of the following provides a measure of the overall fit of
a regression?
A. t-statistic
B. F-statistic
C. R-square
D.The F-statistic and R-square
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
44.
Which of the following can be used to quantify the overall
statistical significance of a regression?
A. t-statistic
B.F-statistic
C. R-square
D. The F-statistic and R-square
Answer: B
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 02 Medium
45.
Which of the following measures of fit penalizes a researcher
for estimating many coefficients with relatively little data?
A. t-statistic
B. R-square
C.Adjusted R-square
D. Neither the t-statistic, the R-square, nor the adjusted R-square
Answer: C
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
46.
As a ruleofthumb, a parameter estimate is statistically
different from zero when the absolute value of the t-statistic is:
A. zero.
B. less than one.
C. greater than or equal to 1.
D.greater than or equal to 2.
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
47.
A study has estimated the effect of changes in interest rates
and consumer confidence on the demand for money to be: ln M = 14.666 + .021 ln
C − 0.036 ln 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 we know that the interest elasticity is:
A. unitary.
B. zero.
C. very elastic.
D.very inelastic.
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
48.
A study has estimated the effect of changes in interest rates
and consumer confidence on the demand for money to be: ln M = 14.666 + .021 ln
C − 0.036 ln 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:
A. drop by 1.8 percent.
B. increase by 1.8 percent.
C.drop by 0.18 percent.
D. increase by 0.18 percent.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
49.
The elasticity of variable G with respect to variable S is
defined as:
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.
Answer: A
Learning Objective: 03-01
Topic: The Elasticity Concept
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
50.
If the absolute value of the own price elasticity of demand is
greater than 1, then demand is said to be:
A.elastic.
B. inelastic.
C. unitary elastic.
D. neither elastic, inelastic, nor unitary elastic.
Answer: A
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
51.
Suppose the own price elasticity of demand for good X is −0.5,
and the price of good X increases by 10 percent. We would expect the quantity
demanded of good X to:
A. increase by 5 percent.
B. increase by 20 percent.
C.decrease by 5 percent.
D. decrease by 20 percent.
Answer: C
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
52.
Suppose the own price elasticity of demand for good X is −0.5,
and the price of good X increases by 10 percent. What would you expect to
happen to the total expenditures on good X?
A.Increase
B. Decrease
C. Remain unchanged
D. Neither increase, decrease, nor remain unchanged
Answer: A
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
53.
If the own price elasticity of demand is infinite in absolute
value, then:
A. demand is perfectly inelastic.
B.the demand curve is horizontal.
C. consumers do not respond at all to changes in price.
D. demand is neither perfectly inelastic nor is the demand curve
horizontal.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
54.
If demand is perfectly inelastic, then:
A. the own price elasticity of demand is infinite in absolute value.
B. a small increase in price will lead to a situation where none of the
good is purchased.
C.the demand curve is vertical.
D. None of the preceding statements is correct.
Answer: C
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
55.
The demand for good X is estimated to be Qxd =
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. 61,500
B. 61,300
C. 61,300 − 4PX
D.61,500 − 4PX
Answer: D
Learning Objective: 03-05
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
56.
The demand for good X is estimated to be Qxd =
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 quantity demanded of good X?
A. 61,500
B.61,300
C. 61,300 − 4PX
D. 61,500 − 4PX
Answer: B
Learning Objective: 03-05
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
57.
The demand for good X is estimated to be Qxd =
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 own price elasticity of demand for good X?
A.−0.003
B. −0.03
C. −0.3
D. −3
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
58.
The demand for good X is estimated to be Qxd =
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. neither elastic, inelastic, nor unitary elastic.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
59.
The demand for good X is estimated to be Qxd =
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 cross-price elasticity between goods X and Y is:
A.0.008.
B. −0.08.
C. −0.8.
D. −8.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
60.
The demand for good X is estimated to be Qxd =
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, goods X and Y are:
A.substitutes.
B. complements.
C. normal goods.
D. inferior goods.
Answer: A
Learning Objective: 03-05
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
61.
The demand for good X is estimated to be Qxd =
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.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
62.
The demand for good X is estimated to be Qxd =
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.
Answer: B
Learning Objective: 03-05
Topic: Income Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
63.
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.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
64.
Which of the following is NOT an important factor that affects
the magnitude of the own price elasticity of a good?
A. Available substitutes
B.Supply of the good
C. Time
D. Expenditure share
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 02 Medium
65.
If there are few close substitutes for a good, demand tends to
be relatively:
A. elastic.
B.inelastic.
C. unitary elastic.
D. neither elastic, inelastic, nor unitary elastic.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
66.
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 changes than the demand for beef.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
67.
The demand for women’s clothing is, in general:
A.more elastic than the demand for clothing.
B. less elastic than the demand for clothing.
C. equally elastic to the demand for clothing.
D. neither more elastic, less elastic, nor equally elastic to the demand
for clothing.
Answer: A
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
68.
Demand tends to be:
A. more elastic in the shortterm than in the longterm.
B.more inelastic in the shortterm than in the longterm.
C. equally elastic in the shortterm and in the longterm.
D. None of the preceding statements is correct.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
69.
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. neither greater than, less than, nor equal to −0.6.
Answer: C
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
70.
Since most consumers spend very little on salt, a small increase
in the price of salt will:
A. reduce quantity demanded by a large amount.
B.not reduce quantity demanded by very much.
C. not change quantity demanded.
D. increase quantity demanded by a small amount.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
71.
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 percent, the expenditure on
transportation increases by 1.8 percent.
Answer: C
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
72.
Non-fed ground beef is an inferior good. In economic booms,
grocery managers should:
A. increase their orders of non-fed ground beef.
B.reduce their orders of non-fed ground beef.
C. not change their orders of non-fed ground beef.
D. neither increase, reduce,nor maintain their current orders for non-fed
ground beef.
Answer: B
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 01 Easy
73.
The demand for good X has been estimated to be ln Qxd =
100 − 2.5 ln PX + 4 ln PY +
ln M. The own price elasticity of good X is:
A.−2.5.
B. 4.0.
C. −2.5 percent.
D. 4.0 percent.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
74.
The demand for good X has been estimated to be ln Qxd =
100 − 2.5 ln PX + 4 ln PY +
ln M. The cross-price elasticity of demand between goods X and Y is:
A. −2.5.
B.4.0.
C. −2.5 percent.
D. 4.0 percent.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
75.
The demand for good X has been estimated to be ln Qxd =
100 − 2.5 ln PX + 4 ln PY +
ln M. The income elasticity of good X is:
A. 4.0.
B.1.0.
C. 2.0.
D. −2.5.
Answer: B
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
76.
The demand for good X has been estimated to be ln Qxd =
100 − 2.5 ln PX + 4 ln PY +
ln M. The advertising elasticity of good X is:
A. 4.0.
B. 1.0.
C.0.0.
D. −2.5.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
77.
The greater the standard error of an estimated coefficient:
A. the greater the t-value of the estimated coefficient.
B.the lower the t-value of the estimated coefficient.
C. the greater the R-square.
D. the greater the adjusted R-square.
Answer: B
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 1 Easy
78.
For a given set of data and a regression equation, the greater
the R-square:
A. the greater the t-value.
B. the lower the t-value.
C.the greater the adjusted R-square.
D. the lower the adjusted R-square.
Answer: C
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
79.
The lower the standard error:
A. the less confident the manager can be that the parameter estimates
reflect the true values.
B.the more confident the manager can be that the parameter estimates reflect
the true values.
C. the more precisely the parameter estimates the true values.
D. the less precisely the parameter estimates the true values.
Answer: B
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
80.
The manager can be 95 percent confident that the true value of
the underlying parameters in a regression is not zero if the absolute value of
the t-statistic is:
A. less than 1.
B. less than 2.
C. greater than 1.
D.greater than 2.
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
81.
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. neither increasing the price, decreasing the price, nor decreasing the
quantity supplied.
Answer: C
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
82.
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:
A.the demand for sugar is inelastic.
B. the demand curve for sugar is upward sloping.
C. the quantity demanded of sugar increased.
D. the demand curve for sugar is upward sloping and the quantity demanded
of sugar increased.
Answer: A
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
83.
Which of the following statements is INCORRECT?
A. If a firm decreases the price of its product, its total revenue must
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.None of the preceding statements is correct.
Answer: D
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
84.
The demand for which of the following commodities is likely to
be most inelastic?
A. Soft drinks
B.Beverages
C. Cola drinks
D. Pepsi Cola
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
85.
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:
A. greater than 1.
B. less than 1.
C. 1.
D.zero.
Answer: D
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
86.
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:
A.decrease.
B. increase.
C. remain constant.
D. either increase or remain constant, depending upon the size of the
price increase.
Answer: A
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
87.
The management of Local Cinema has estimated the monthly demand
for tickets to be ln Q = 22,328 − 0.41 ln P + 0.5 ln M − 0.33 ln A + 100 ln 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 PDVD =
$3.00. Determine the own price elasticity of demand for movie tickets.
A. −0.29
B. −0.32
C. −0.39
D.−0.41
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
88.
The management of Local Cinema has estimated the monthly demand
for tickets to be ln Q = 22,328 − 0.41 ln P + 0.5 ln M − 0.33 ln A + 100 ln 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?
A. Advertising decreases the demand for movie tickets.
B. Movies are normal goods.
C.Movies are complements for DVD rentals.
D. The advertising elasticity of demand for movie tickets is −0.33.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 03 Hard
89.
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 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 preceding statements is correct.
Answer: D
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
90.
The demand for good X is given by ln Qxd =
120 − 0.9 ln Px + 1.5 ln Py− 0.7
ln M. Which of the following statements is correct?
A.X has constant income elasticity.
B. An economic downturn will decrease demand for X.
C. A 15 percent increase in income would increase demand for X by 10.5
percent.
D. X has a constant income elasticity, and an economic downturn will
decrease the demand for X.
Answer: A
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
91.
The cross-price elasticity of demand between goods X and Y is
−3.5. If the price of X decreases by 7 percent, the quantity demanded of Y
will:
A. decrease by 24.5 percent.
B. decrease by 2.45 percent.
C.increase by 24.5 percent.
D. increase by 2.45 percent.
Answer: C
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
92.
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 preceding statements is correct.
Answer: B
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
93.
The cross-price elasticity of demand for books and magazines is
−2.0. If the price of magazines decreases by 10 percent, the quantity demanded
of books will:
A. fall by 2.0 percent.
B. rise by 2.0 percent.
C. fall by 20 percent.
D.rise by 20 percent.
Answer: D
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
94.
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.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 01 Easy
95.
The demand for video recorders has been estimated to be linear
and given by the demand relation Qv =
145 − 3.2Pv + 7M − 0.95Pf− 39Pm,
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 M is income. Based on the estimated demand
equation we can conclude:
A. video recorders are normal goods.
B. the demand for video recorders is inelastic.
C. video recorders are normal goods and the demand for video recorders is
inelastic.
D.video recorders are normal goods and video recorder film is a complement for
video recorders.
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
96.
The elasticity of demand for gasoline has been estimated to be
2.0, and the standard error is 1.0. The upper and lower bounds on the 95
percent confidence interval for the elasticity of demand for gasoline are:
A. 3 and 2.
B. 2 and 1.
C. 3 and 1.
D.None of the preceding statements is correct.
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
97.
The cross-price elasticity of demand for textbooks and copies of
old exams is −3.5. If the price of copies of old exams increases by 10 percent,
the quantity demanded of textbooks will:
A. fall by 3.5 percent.
B. rise by 3.5 percent.
C.fall by 35 percent.
D. rise by 35 percent.
Answer: C
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
98.
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.None of the preceding statements is correct.
Answer: D
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
99.
The demand for which of the following commodities is likely to
be most price inelastic?
A.Food
B. Hamburgers
C. Big Macs
D. Sandwiches
Answer: A
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 01 Easy
100.
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.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analytical Thinking
Difficulty: 02 Medium
101. 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.
Answer: A
Learning Objective: 03-02
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
102.
Suppose the demand for a product is Qxd =
12 − 3 ln Px. Then demand for product x is:
A. inelastic.
B. unitary elastic.
C.elastic.
D. It cannot be determined without more information.
Answer: C
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analyze
Difficulty: 01 Easy
103.
The demand for good X has been estimated by Qxd =
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
Answer: D
Learning Objective: 03-05
Topic: Obtaining Elasticities From Demand Functions
Blooms: Apply
AACSB: Analyze
Difficulty: 02 Medium
104.
The own price elasticity of demand for apples is −1.5. If the
price of apples falls by 6 percent, what will happen to the quantity of apples
demanded?
A. It will increase 4 percent.
B.It will increase 9 percent.
C. It will fall 4 percent.
D. It will fall 6 percent.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analyze
Difficulty: 02 Medium
105.
If quantity demanded for sneakers falls by 6 percent when price
increases 20 percent, 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.
Answer: A
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Apply
AACSB: Analyze
Difficulty: 01 Easy
106.
If the cross-price elasticity between ketchup and hamburgers is
−2.5, a 2 percent increase in the price of ketchup will lead to a:
A. 5 percent drop in quantity demanded of ketchup.
B. 5 percent drop in quantity demanded of hamburgers.
C. 5 percent increase in quantity demanded of ketchup.
D. 5 percent increase in quantity demanded of hamburgers.
Answer: B
Learning Objective: 03-01
Topic: Cross-Price Elasticity
Blooms: Apply
AACSB: Analyze
Difficulty: 02 Medium
107.
If the income elasticity for lobster is 0.6, a 25 percent
increase in income will lead to a:
A. 6 percent drop in demand for lobster.
B. 2.4 percent increase in demand for lobster.
C. 15 percent increase in demand for lobster.
D. 42 percent increase in demand for lobster.
Answer: C
Learning Objective: 03-01
Topic: Income Elasticity
Blooms: Apply
AACSB: Analyze
Difficulty: 02 Medium
108.
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 percent?
A. 0.05 percent
B.20 percent
C. 25 percent
D. 1.25 percent
Answer: B
Learning Objective: 03-01
Topic: Other Elasticities
Blooms: Apply
AACSB: Analyze
Difficulty: 02 Medium
109.
The statistical analysis of economic phenomena is defined as:
A. standard error.
B. confidence intervals.
C. the t-statistic.
D.econometrics.
Answer: D
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
110.
Which of the following provides a measure of the overall fit of
a regression?
A. t-statistic
B.F-statistic
C. P-value
D. The t-statistic and the P-value
Answer: B
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
111.
As a general ruleofthumb, a manager can be 95 percent confident
that the true value of the underlying parameter in the regression is not zero,
when the absolute value of the t-statistic is:
A. greater than zero.
B. greater than or equal to 1.
C.greater than or equal to 2.
D. None of the preceding statements is correct.
Answer: C
Learning Objective: 03-06
Topic: Regression Analysis
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
112.
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. the demand curve is vertical and consumers do not respond at all to
changes in price.
Answer: A
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Remember
AACSB: Knowledge Application
Difficulty: 01 Easy
113.
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.
Answer: B
Learning Objective: 03-01
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 03 Hard
114.
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 preceding statements is correct.
Answer: C
Learning Objective: 03-03
Topic: Own Price Elasticity of Demand
Blooms: Understand
AACSB: Knowledge Application
Difficulty: 02 Medium
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