ECO 3320 Managerial Economics

H. Sarikaya Chapter 3

Homework

Student: ___________________________________________________________________

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.

2. 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.

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

4. 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.

5. Demand is more inelastic in the short-term because consumers: A. are impatient. B. have no time to find available substitutes. C. are present-oriented. D. are neither impatient, have no time to find available substitutes nor are present-oriented.

6. If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4% increase in the price of ketchup will lead to a 4.8%: 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.

7. 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.

8. Suppose the demand function is given by Qxd = 1000 - 8Px + 3Py +2M - 5H. Then good x is: A. a normal good. B. an inferior good. C. a complement for good y. D. perfectly inelastic.

9. 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.

10. Suppose the own-price elasticity of demand for good X is -0.5, and that the price of good X increases by 10%. We would expect the quantity demanded of good X to A. increase by 5%. B. increase by 20%. C. decrease by 5%. D. decrease by 20%.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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 one. B. less than one. C. one. D. zero.

17. The cross-price advertising 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.

18. The demand for video recorders has been estimated to 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.

19. If the income elasticity for lobster is .6, a 25% increase in income will lead to a A. 6% drop in demand for lobster. B. 2.4% increase in demand for lobster. C. 15% increase in demand for lobster. D. 42% increase in demand for lobster.

20. 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.

21. 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.

22. Which of the following is a correct statement about the own-price elasticity of demand? A. Demand tends to be more inelastic in the short-term than in the long-term. B. Demand tends to be more elastic as more substitutes are available. C. Demand tends to be more inelastic for goods that comprise a smaller share of a consumer's budget. D. All of the statements are correct.

23. When marginal revenue is zero, total revenue A. will increase when price increases. B. is maximized. C. will decrease when price decreases. D. will decrease as quantity decreases.

24. When marginal revenue is positive, demand is A. elastic. B. inelastic. C. unit elastic. D. there is not sufficient information to classify the elasticity of demand.

25. 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 A. -$5. B. $45. C. -$45. D. $5.

26. The demand function in the above table is QXd = 100 - 2PX. Based on this information, when QX = 80, the price, PX, (point A) is A. $5. B. $10. C. $15. D. $20.

27. The demand function in the above table is QXd = 100 - 2PX. Based on this information, when PX = $30, quantity demand, QXd, (point B) is A. 100. B. 80. C. 60. D. 40. 28. Suppose the own-price elasticity of demand for good X is -5, and that the quantity of good X decreases by 5%. What would you expect to happen to the total expenditures on good X? A. increase. B. decrease. C. unchanged. D. neither increase, decrease nor remain unchanged.