Managerial Economics & Business Strategy 8th Edition by Michael Baye – 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:
1. decrease.
1. increase.
1. remain
constant.
1. either
increase or remain constant, depending upon the size of the price increase.
2. A
price elasticity of zero corresponds to a demand curve that is:
1. horizontal.
1. downward
sloping with a slope always equal to 1.
1. vertical.
1. either
vertical or horizontal.
3. As we
move down along a linear demand curve, the price elasticity of demand becomes
more:
1. elastic.
1. inelastic.
1. log-linear.
1. variable.
4. If
the demand for a product is Qxd = 10 – ln Px, then product x is:
1. elastic.
1. inelastic.
1. unitary
elastic.
1. Cannot
be determined without more information.
5. The
demand for good X has been estimated by Qxd = 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.
1. -0.2
1. -0.3
1. -0.5
1. -0.6
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?
1. It
will increase 5 percent.
4. It
will fall 4.3 percent.
4. It
will increase 4.2 percent.
1. It
will increase 6 percent.
7. If
apples have an own price elasticity of -1.2 we know the demand is:
1. unitary.
1. indeterminate.
1. elastic.
1. inelastic.
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:
2. 2.5.
1. 0.4.
2. 2.0.
1. 0.27.
9. The
quantity consumed of a good is relatively unresponsive to changes in price
whenever demand is:
1. elastic.
1. unitary.
1. falling.
1. inelastic.
10. If
the absolute value of the own price elasticity of steak is 0.4, a decrease in
price will lead to:
1. a
reduction in total revenue.
1. an
increase in total revenue.
1. no
change in total revenue.
1. None
of the statements is correct.
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?
1. 0.57
1. 1.75
1. 0.02
1. 1.24
12. Demand
is perfectly elastic when the absolute value of the own price elasticity of
demand is:
1. zero.
1. one.
1. infinite.
1. unknown.
13. The demand
curve for a good is horizontal when it is:
1. a
perfectly inelastic good.
1. a
unitary elastic good.
1. a
perfectly elastic good.
1. an
inferior good.
14. Suppose
Qxd = 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?
2. -2.34
1. -0.78
1. -0.21
1. -1.21
15. Suppose
Qxd = 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:
1. elastic.
1. inelastic.
1. unitary.
1. neither
elastic, inelastic, nor unitary elastic.
16. Suppose
Qxd = 10,000 – 2 Px + 3 Py – 4.5M, where Px = $100, Py = $50, and M = $2,000.
How much of good X is consumed?
1. 100
units
1. 500
units
1. 1,100
units
1. 950
units
17. Which
of the following factors would NOT affect the own price elasticity of a good?
1. Time
1. Price
of an input
1. Available
substitutes
1. Expenditure
share
18. Lemonade,
a good with many close substitutes, should have an own price elasticity that
is:
1. unitary.
1. relatively
elastic.
1. relatively
inelastic.
1. perfectly
inelastic.
19. We
would expect the demand for jeans to be:
1. more
elastic than the demand for clothing.
1. less
elastic than the demand for clothing.
1. the
same as the demand for clothing.
1. neither
more elastic, less elastic, nor the same elasticity as that of the demand for
clothing.
20. Demand
is more inelastic in the short term because consumers:
1. are
impatient.
1. have
no time to find available substitutes.
1. are
present-oriented.
1. None
of the statements is correct.
21. We
would expect the own price elasticity of demand for food to be:
1. less
elastic than the demand for cereal.
1. more
elastic than the demand for cereal.
1. the
same as that for soap.
1. perfectly
inelastic.
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:
1. own
price elasticity.
1. income
elasticity.
1. log-linear
elasticity.
1. cross-price
elasticity.
23. If
the cross-price elasticity between goods A and B is negative, we know the goods
are:
1. inferior
goods.
1. complements.
1. inelastic.
1. substitutes.
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:
1. drop
in quantity demanded of ketchup.
1. drop
in quantity demanded of hamburgers.
1. increase
in quantity demanded of ketchup.
1. increase
in quantity demanded of hamburgers.
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-price elasticity
of apple sauce and pork chops at a pork chop price of $6?
1. -1.17
2. 2.71
1. 0.42
1. -0.86
26. Suppose
the demand function is Qxd = 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?
1. 0.17
1. 0.38
1. 0.21
1. 0.04
27. The
elasticity that measures the responsiveness of consumer demand to changes in
income is the:
1. income
elasticity.
1. own
price elasticity.
1. cross-price
elasticity.
1. neither
the income elasticity, the own price elasticity, nor the cross-price
elasticity.
28. An
income elasticity less than zero tells us that the good is:
1. a
normal good.
1. a
Giffen good.
1. an
inferior good.
1. an
inelastic good.
29. If
the income elasticity for lobster is 0.4, a 40 percent increase in income will
lead to a:
1. 10
percent drop in demand for lobster.
1. 16
percent increase in demand for lobster.
1. 20
percent increase in demand for lobster.
1. 4
percent increase in demand for lobster.
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?
10. Buy
10.5 percent more peanut butter.
2. Buy
2.14 percent more peanut butter.
6. Buy
6.2 percent less peanut butter.
9. Buy
9.8 percent less peanut butter.
31. Suppose
demand is given by Qxd = 50 – 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax =
$50. What is the advertising elasticity of demand for good x?
1. 1.12
1. 0.38
1. 1.92
1. 0.52
32. Suppose
demand is given by Qxd = 50 – 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax =
$50. What is the quantity demanded of good x?
1. 96
1. 50
1. 46
1. 72
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?
1. 0.02
percent
38. 38.6
percent
66. 66.7
percent
4. 4.3
percent
34. 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 goods x and y are:
1. substitutes.
1. complements.
1. normal
goods.
1. inferior
goods.
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:
1. an
inferior good.
1. an
elastic good.
1. a
normal good.
1. a
Giffen good.
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:
1. unitary.
1. elastic.
1. inelastic.
1. It
cannot be calculated from the existing information.
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:
4. 4.00.
1. 0.25.
1. 0.50.
8. 8.33.
38. Suppose
the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then good x is:
1. a
normal good.
1. an
inferior good.
1. a
complement for good y.
1. perfectly
inelastic.
39. Suppose
the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H. Then the demand
for good x is:
1. inelastic.
1. unitary.
1. elastic.
1. perfectly
elastic.
40. The
statistical analysis of economic phenomena is defined as:
1. econometrics.
1. variance.
1. confidence
intervals.
1. standard
deviation.
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:
1. video
recorders are inferior goods.
1. video
recorder film is a substitute for video recorders.
1. the
demand for video recorders is inelastic.
1. the
demand for video recorders is neither inferior nor inelastic, and video
recorder film is not a substitute for video recorders.
42. Which
of the following is used to determine the statistical significance of a
regression coefficient?
1. t-statistic
1. F-statistic
1. R-square
1. Adjusted
R-square
43. Which
of the following provides a measure of the overall fit of a regression?
1. t-statistic
1. F-statistic
1. R-square
1. The
F-statistic and R-square
44. Which
of the following can be used to quantify the overall statistical significance
of a regression?
1. t-statistic
1. F-statistic
1. R-square
1. The
F-statistic and R-square
45. Which
of the following measures of fit penalizes a researcher for estimating many
coefficients with relatively little data?
1. t-statistic
1. R-square
1. Adjusted
R-square
1. Neither
the t-statistic, the R-square, nor the adjusted R-square
46. As a
rule of thumb, a parameter estimate is statistically different from zero when
the absolute value of the t-statistic is:
1. zero.
1. less
than one.
1. greater
than or equal to 1.
2. greater
than or equal to 2.
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:
1. unitary.
1. zero.
1. very
elastic.
1. very
inelastic.
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:
1. drop
by 1.8 percent.
1. increase
by 1.8 percent.
1. drop
by 0.18 percent.
1. increase
by 0.18 percent.
49. The
elasticity of variable G with respect to variable S is defined as:
1. the
percentage change in variable G that results from a given percentage change in
variable S.
1. the
percentage change in variable G that results from a given change in variable S.
1. the
change in variable G that results from a given percentage change in variable S.
1. the
change in variable G that results from a given change in variable S.
50. If
the absolute value of the own price elasticity of demand is greater than 1,
then demand is said to be:
1. elastic.
1. inelastic.
1. unitary
elastic.
1. neither
elastic, inelastic, nor unitary elastic.
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:
1. increase
by 5 percent.
1. increase
by 20 percent.
1. decrease
by 5 percent.
1. decrease
by 20 percent.
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?
1. Increase
1. Decrease
1. Remain
unchanged
1. Neither
increase, decrease, nor remain unchanged
53. If
the own price elasticity of demand is infinite in absolute value, then:
1. demand
is perfectly inelastic.
1. the
demand curve is horizontal.
1. consumers
do not respond at all to changes in price.
1. demand
is neither perfectly inelastic nor is the demand curve horizontal.
54. If
demand is perfectly inelastic, then:
1. the
own price elasticity of demand is infinite in absolute value.
1. a
small increase in price will lead to a situation where none of the good is
purchased.
1. the
demand curve is vertical.
1. None
of the statements is correct.
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?
1. 61,500
1. 61,300
1. 61,300
– 4PX
1. 61,500
– 4PX
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?
1. 61,500
1. 61,300
1. 61,300
– 4PX
1. 61,500
– 4PX
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?
1. -0.003
1. -0.03
1. -0.3
1. -3
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:
1. elastic.
1. inelastic.
1. unitary
elastic.
1. neither
elastic, inelastic, nor unitary elastic.
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:
1. 0.008.
1. -0.08.
1. -0.8.
8. -8.
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:
1. substitutes.
1. complements.
1. normal
goods.
1. inferior
goods.
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:
1. 0.008.
1. 0.082.
1. 0.82.
8. 8.2.
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:
1. an
inferior good.
1. a
normal good.
1. a
Giffen good.
1. a
regular good.
63. When
a demand curve is linear,
1. the
elasticity is the same as the slope of the demand curve.
1. demand
is elastic at high prices.
1. demand
is unitary elastic at low prices.
1. the
elasticity is constant at all prices.
64. Which
of the following is NOT an important factor that affects the magnitude of the
own price elasticity of a good?
1. Available
substitutes
1. Supply
of the good
1. Time
1. Expenditure
share
65. If
there are few close substitutes for a good, demand tends to be relatively:
1. elastic.
1. inelastic.
1. unitary
elastic.
1. neither
elastic, inelastic, nor unitary elastic.
66. The
demand for food (a broad group) is more:
1. elastic
than the demand for beef (specific commodity).
1. inelastic
than the demand for beef (specific commodity).
1. sensitive
to price changes than the demand for beef.
1. responsive
to price changes than the demand for beef.
67. The
demand for women’s clothing is, in general:
1. more
elastic than the demand for clothing.
1. less
elastic than the demand for clothing.
1. equally
elastic to the demand for clothing.
1. neither
more elastic, less elastic, nor equally elastic to the demand for clothing.
68. Demand
tends to be:
1. more
elastic in the short term than in the long term.
1. more inelastic
in the short term than in the long term.
1. equally
elastic in the short term and in the long term.
1. None
of the statements is correct.
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:
1. -0.6.
1. greater
than -0.6.
1. less
than -0.6.
1. neither
greater than, less than, nor equal to -0.6.
70. Since
most consumers spend very little on salt, a small increase in the price of salt
will:
1. reduce
quantity demanded by a large amount.
1. not
reduce quantity demanded by very much.
1. not
change quantity demanded.
1. increase
quantity demanded by a small amount.
71. Suppose
the income elasticity for transportation is 1.8. Which of the following is an
INCORRECT statement?
1. Transportation
is a normal good.
1. Expenditures
on transportation grow more rapidly than income grows.
1. Expenditures
on transportation will fall less rapidly than income falls.
1. Whenever
the income increases by 1 percent, the expenditure on transportation increases
by 1.8 percent.
72. Non-fed
ground beef is an inferior good. In economic booms, grocery managers should:
1. increase
their orders of non-fed ground beef.
1. reduce
their orders of non-fed ground beef.
1. not change
their orders of non-fed ground beef.
1. neither
increase, reduce, nor maintain their current orders for non-fed ground beef.
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:
2. -2.5.
4. 4.0.
2. -2.5
percent.
4. 4.0
percent.
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:
2. -2.5.
4. 4.0.
2. -2.5
percent.
4. 4.0 percent.
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:
4. 4.0.
1. 1.0.
2. 2.0.
2. -2.5.
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:
4. 4.0.
1. 1.0.
1. 0.0.
2. -2.5.
77. The
greater the standard error of an estimated coefficient:
1. the
greater the t-value of the estimated coefficient.
1. the
lower the t-value of the estimated coefficient.
1. the
greater the R-square.
1. the
greater the adjusted R-square.
78. For a
given set of data and a regression equation, the greater the R-square:
1. the
greater the t-value.
1. the
lower the t-value.
1. the
greater the adjusted R-square.
1. the
lower the adjusted R-square.
79. The
lower the standard error:
1. the
less confident the manager can be that the parameter estimates reflect the true
values.
1. the
more confident the manager can be that the parameter estimates reflect the true
values.
1. the
more precisely the parameter estimates the true values.
1. the
less precisely the parameter estimates the true values.
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:
1. less
than 1.
2. less
than 2.
1. greater
than 1.
2. greater
than 2.
81. When
the own price elasticity of good X is -3.5, then total revenue can be increased
by:
1. increasing
the price.
1. decreasing
the quantity supplied.
1. decreasing
the price.
1. neither
increasing the price, decreasing the price, nor decreasing the quantity
supplied.
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:
1. the
demand for sugar is inelastic.
1. the
demand curve for sugar is upward sloping.
1. the
quantity demanded of sugar increased.
1. the demand
curve for sugar is upward sloping and the quantity demanded of sugar increased.
83. Which
of the following statements is INCORRECT?
1. If a
firm decreases the price of its product, its total revenue must decrease.
1. The
own price elasticity of demand is constant at all points along a linear demand
curve.
1. 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.
1. None
of the statements is correct.
84. The
demand for which of the following commodities is likely to be most inelastic?
1. Soft
drinks
1. Beverages
1. Cola
drinks
1. Pepsi
Cola
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:
1. greater
than 1.
1. less
than 1.
1. 1.
1. zero.
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:
1. decrease.
1. increase.
1. remain
constant.
1. either
increase or remain constant, depending upon the size of the price increase.
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.
1. -0.29
1. -0.32
1. -0.39
1. -0.41
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?
1. Advertising
decreases the demand for movie tickets.
1. Movies
are normal goods.
1. Movies
are complements for DVD rentals.
1. The
advertising elasticity of demand for movie tickets is -0.33.
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:
1. the
demand for sugar is inelastic.
1. the
demand curve for sugar is upward sloping.
1. the
quantity demanded of sugar increased.
1. None
of the statements is correct.
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?
1. X has
constant income elasticity.
1. An
economic downturn will decrease demand for X.
10. A 15
percent increase in income would increase demand for X by 10.5 percent.
1. X has
a constant income elasticity, and an economic downturn will decrease the demand
for X.
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:
24. decrease
by 24.5 percent.
2. decrease
by 2.45 percent.
24. increase
by 24.5 percent.
2. increase
by 2.45 percent.
92. The
short-run response of quantity demanded to a change in price is usually:
1. the
same as the long-run response.
1. less
than the long-run response.
1. greater
than the long-run response.
1. None
of the statements is correct.
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:
2. fall
by 2.0 percent.
2. rise
by 2.0 percent.
1. fall
by 20 percent.
1. rise
by 20 percent.
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:
8. 8.
2. 2.
3. 2/3.
8. 1/8.
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:
1. video
recorders are normal goods.
1. the
demand for video recorders is inelastic.
1. video
recorders are normal goods and the demand for video recorders is inelastic.
1. video
recorders are normal goods and video recorder film is a complement for video
recorders.
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:
2. 3 and
2.
1. 2 and
1.
1. 3 and
1.
1. None
of the statements is correct.
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:
3. fall
by 3.5 percent.
3. rise
by 3.5 percent.
1. fall
by 35 percent.
1. rise
by 35 percent.
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:
1. the
demand for sugar is elastic.
1. the
demand curve for sugar is upward sloping.
1. sugar
is a Giffen good.
1. None
of the statements is correct.
99. The
demand for which of the following commodities is likely to be most price
inelastic?
1. Food
1. Hamburgers
1. Big
Macs
1. Sandwiches
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:
8. 8.
2. 2.
3. 2/3.
8. 1/8.
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:
1. decrease.
1. increase.
1. remain
constant.
1. either
increase or remain constant, depending upon the size of the price decrease.
102.
Suppose the demand for a product is Qxd = 12 – 3 ln Px. Then
demand for product x is:
1. inelastic.
1. unitary
elastic.
1. elastic.
1. It
cannot be determined without more information.
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.
1. -0.3
1. -0.4
1. -0.5
1. -0.6
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?
1. It
will increase 4 percent.
1. It
will increase 9 percent.
1. It
will fall 4 percent.
1. It
will fall 6 percent.
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:
1. 0.3.
1. 0.7.
2. 2.3.
3. 3.3.
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:
1. 5
percent drop in quantity demanded of ketchup.
1. 5
percent drop in quantity demanded of hamburgers.
1. 5
percent increase in quantity demanded of ketchup.
1. 5
percent increase in quantity demanded of hamburgers.
107.
If the income elasticity for lobster is 0.6, a 25 percent
increase in income will lead to a:
1. 6
percent drop in demand for lobster.
2. 2.4
percent increase in demand for lobster.
1. 15
percent increase in demand for lobster.
1. 42 percent
increase in demand for lobster.
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?
1. 0.05
percent
1. 20
percent
1. 25
percent
1. 1.25
percent
109.
The statistical analysis of economic phenomena is defined as:
1. standard
error.
1. confidence
intervals.
1. the
t-statistic.
1. econometrics.
110.
Which of the following provides a measure of the overall fit of
a regression?
1. t-statistic
1. F-statistic
1. P-value
1. The
t-statistic and the P-value
111.
As a general rule of thumb, 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:
1. greater
than zero.
1. greater
than or equal to 1.
2. greater
than or equal to 2.
1. None
of the statements is correct.
112.
If the own price elasticity of demand is infinite in absolute
value, then:
1. demand
is perfectly elastic.
1. the
demand curve is vertical.
1. consumers
do not respond at all to changes in price.
1. the
demand curve is vertical and consumers do not respond at all to changes in
price.
113.
When a demand curve is linear:
1. demand
is elastic at low prices.
1. demand
is inelastic at low prices.
1. demand
is unitary elastic at low prices.
1. the
elasticity is constant at all prices.
114.
The demand for Cinnamon Toast Crunch brand cereal is:
1. equally
elastic to the demand for cereal in general.
1. less
elastic than the demand for cereal in general.
1. more
elastic than the demand for cereal in general.
1. None
of the statements is correct.
115.
Which of the following is a correct statement about the own
price elasticity of demand?
1. Demand
tends to be more inelastic in the short term than in the long term.
1. Demand
tends to be more elastic as more substitutes are available.
1. Demand
tends to be more inelastic for goods that comprise a smaller share of a
consumer’s budget.
1. All
of the statements are correct.
116.
When marginal revenue is zero, demand will be:
1. elastic.
1. inelastic.
1. unit
elastic.
1. There
is not sufficient information to classify the elasticity of demand.
117.
When marginal revenue is zero, total revenue:
1. will increase
when price increases.
1. is
maximized.
1. will
decrease when price decreases.
1. will
decrease as quantity decreases.
118.
When marginal revenue is positive, demand is:
1. elastic.
1. inelastic.
1. unit
elastic.
1. There
is not sufficient information to classify the elasticity of demand.
119.
When marginal revenue is negative, demand is:
1. elastic.
1. inelastic.
1. unit
elastic.
1. There
is not sufficient information to classify the elasticity of demand.
120.
Suppose the equilibrium price in the market is $10 and the price
elasticity of demand for the linear demand function at the market equilibrium
is -1.25. Then we know that:
1. demand
is inelastic.
2. marginal
revenue is $2.
50. marginal
revenue is $50.
1. demand
is unit elastic.
121.
Suppose that at the equilibrium price and quantity, the marginal
revenue is -$15 and the price elasticity of demand for a linear demand function
is -0.75. Then we know that the equilibrium price is:
5. -$5.
45. $45.
45. -$45.
5. $5.
122.
Suppose the equilibrium price in the market is $100 and the
marginal revenue associated with the linear (inverse) demand function is $50.
Then we know that the own price elasticity of demand is:
2. -2.
1. 1.
2. 2.
1. It
cannot be determined from the information contained in the question.
123.
Suppose the equilibrium price in the market is $60 and the
marginal revenue associated with the linear (inverse) demand function is $20.
Then we know that the own price elasticity of demand is:
2. -2.
2. 2.
1. -1.5.
1. It
cannot be determined from the information contained in the question.
124.
A firm derives revenue from two sources: goods X and Y. Annual
revenues from good X and Y are $10,000 and $20,000, respectively. If the price
elasticity of demand for good X is -4.0 and the cross-price elasticity of
demand between Y and X is 2.0, then a 2 percent decrease in the price of X
will:
520.
increase total revenues from X and Y by $520.
200.
decrease total revenues from X and Y by $200.
1. leave
total revenues from X and Y unchanged.
600.
decrease total revenues for X and Y by $600.
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