Question 1

If MC = &#8364;5 and P = -4, the profit-maximizing price equals:&#10;A)&#8364;4.&#10;B)&#8364;20.&#10;C)&#8364;6.67.&#10;D)&#8364;6.25.

Accepted Answer

C

Question 2

When the crossprice elasticity PX = 1.5:&#10;A)the quantity demanded rises by 1% with a 1.5% increase in the price of X.&#10;B)demand rises by 1% with a 1.5% increase in the price of X.&#10;C)demand rises by 1.5% with a 1% increase in the price of X.&#10;D)the quantity demanded rises by 1.5% with a 1% increase in the price of X.

Accepted Answer

C

Question 3

The arc price elasticity of demand shows the percentage change in:&#10;A)demand following a change in the price of a product itself.&#10;B)the quantity demanded following a change in price of a product itself.&#10;C)price following a change in the quantity demanded.&#10;D)the price of a product itself following a change in demand.

Accepted Answer

The arc price elasticity of demand measures the responsiveness of quantity demanded to a change in the price of a product. It shows the percentage change in the quantity demanded following a change in price of a product itself. The arc price elasticity of demand measures the percentage change in quantity demanded divided by the percentage change in price. Therefore, it shows the response of quantity demanded to a change in the price of a product itself.

Question 4

The law of diminishing marginal utility:&#10;A)states that as an individual increases consumption of a given product within a set period of time, the marginal utility gained from consumption eventually becomes negative.&#10;B)contradicts the nonsatiation principle.&#10;C)measures the added satisfaction derived from a oneunit increase in consumption of a particular good or service, holding consumption of other goods and services constant.&#10;D)gives rise to a downward-sloping demand curve for all goods and services.

Accepted Answer

The answer of The law of diminishing marginal utility:&#10;A)states that...

Question 5

Utility theory does not assume that:&#10;A)more is better.&#10;B)each incremental unit of consumption brings some additional satisfaction.&#10;C)consumers are able to rank order the desirability of various goods and services.&#10;D)consumers know how much one product is preferred over another.

Accepted Answer

Utility theory assumes that consumers are able to rank order the desirability of various goods and services, and that each incremental unit of consumption brings some additional satisfaction. However, it does not assume that consumers know exactly how much they prefer one product over another, as preferences can be subjective and influenced by a variety of factors. Utility theory does not assume that consumers know how much one product is preferred over another. In fact, one of the main challenges of utility theory is that it can be difficult for consumers to accurately rank the desirability of various goods and services.

Question 6

If MR = &#8364;9,000 - &#8364;300Q and MC = &#8364;5,000 + &#8364;100Q, the profit-maximizing quantity is:&#10;A)50.&#10;B)30.&#10;C)10.&#10;D)20.

Accepted Answer

The answer of If MR = &#8364;9,000 - &#8364;300Q and...

Question 7

If consumption of Y is depicted on the vertical axis and consumption of X is depicted on the horizontal axis, a parallel inward shift in the budget constraint occurs when:&#10;A)prices for both X and Y fall by a given percentage.&#10;B)the relative price of X rises.&#10;C)the relative price of Y rises.&#10;D)prices for both X and Y rise by a given percentage.

Accepted Answer

An inward shift in the budget constraint occurs when the consumer's purchasing power decreases, which happens when prices for both goods X and Y rise by a given percentage, reducing the quantity of both goods that can be bought with a given income.

Question 8

If P1 = &#8364;10, Q1 = 500, P2 = &#8364;9.50 and Q2 = 550, then at point P1 the point price elasticity P equals:&#10;A)-2.&#10;B)2.&#10;C)-0.5.&#10;D)0.5.

Accepted Answer

The formula for point price elasticity of demand is:

P = (% change in quantity demanded) / (% change in price)

To calculate it at point P1, we need to use the values of P1 and P2:

% change in quantity demanded = (Q2 - Q1) / Q1 x 100
% change in quantity demanded = (550 - 500) / 500 x 100
% change in quantity demanded = 10%

% change in price = (P2 - P1) / P1 x 100
% change in price = (9.50 - 10) / 10 x 100
% change in price = -5%

Now, we can plug these values into the formula:

P = (% change in quantity demanded) / (% change in price)
P = 10% / -5%
P = -2

Therefore, the point price elasticity at P1 equals -2, which means that the good is elastic, because a 1% decrease in price leads to a 2% increase in quantity demanded. Price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in the price of the good.

Using the midpoint formula, we get:

Price elasticity at point P1 = (ΔQ / ((Q1 + Q2) / 2)) / (ΔP / ((P1 + P2) / 2))
= ((550 - 500) / ((500 + 550) / 2)) / ((9.50 - 10) / ((10 + 9.50) / 2))
= (50 / 525) / (-0.05 / 9.75)
= -2

Therefore, the point price elasticity at P1 is -2.

Question 9

If MR = &#8364;9,000 - &#8364;300Q and MC = &#8364;5,000 + &#8364;100Q, the profit-maximizing price is:&#10;A)&#8364;10.&#10;B)&#8364;4,500.&#10;C)&#8364;1,500.&#10;D)&#8364;7,500.

Accepted Answer

To find the profit-maximizing quantity, set MR = MC: €9,000 - €300Q = €5,000 + €100Q. Solving for Q gives Q = 10. Substitute Q = 10 back into the MR equation to find the price: MR = €9,000 - €300(10) = €6,000. However, the price is determined by the demand curve, which is not provided, but the closest option to the calculated MR is €7,500.

Question 10

Goods for which 0 < I < 1 are often referred to as:&#10;A)cyclical normal goods.&#10;B)noncyclical normal goods.&#10;C)being relatively unaffected by changing income.&#10;D)inferior goods.

Accepted Answer

Goods for which 0 < I < 1 are often referred to as noncyclical normal goods, meaning their demand increases with income but at a slower rate than the increase in income.

Deck 4: Demand Analysis