Deck 7: Demand and the Firm

Question 1

A problem with using market observation data for business planning is that

A) the data may be subject to ethical problems.
B) the data may be subject to untruthful responses.
C) relationships that hold in the past may not hold in the future.
D) B and C

Answer 1

relationships that hold in the past may not hold in the future.

Question 2

Which of the following is not one of the reasons for trying to estimate a demand function?

A) To predict the effects of price changes
B) To predict the effects of a decline in growth of the market
C) To predict the effects of a new production method
D) To predict the effects of advertising

Answer 2

To predict the effects of a new production method

Question 3

Which of the following is not one of the reasons for trying to estimate a demand function?

A) To predict the effect of price changes
B) To predict the effect of advertising
C) To predict changes in customer taste
D) To predict decline or growth in the market

Answer 3

To predict changes in customer taste

Question 4

When creating a demand function, we would not use data on

A) advertising.
B) our prices.
C) customers' income.
D) our production costs.

Question 5

Which of the following is not a problem of collecting data using market surveys?

A) The data may not be a true random sample.
B) The data collected relates to actual consumer purchases.
C) The data could be misleading as some respondents may not tell the truth.
D) The data could be misleading as some of the questions may be leading.

Question 6

Which of the following is a problem specific to collecting data using market experiments?

A) The sample is likely to be large.
B) Consumers may behave differently when they are being observed.
C) Relationships that held in the past may not hold in the future.
D) The data collected relates to past consumer purchases.

Question 7

Which of these three methods suffers from the major drawback that relationships that held in the past will not necessarily hold in the future?

A) Market observations
B) Market surveys
C) Market experiments

Question 8

Market experiments would not involve

A) checking reactions to different types of packaging.
B) commenting on products.
C) being offered different products at different prices.
D) industrial espionage.

Question 9

A demand function would not include

A) expected future wage costs.
B) prices of substitutes.
C) expected future prices.
D) distribution of income data.

Question 10

When creating a demand function, we would not use data on

A) our prices.
B) production costs.
C) consumer income.
D) advertising.

Question 11

A demand function shows

A) the relationship between demand for a good or service and company profits and costs.
B) the relationship between the price consumers wish to pay and variables such as quantity, income and tastes.
C) the relationship between revenue of a company and variables such as quantity, price, incom and tastes.
D) the relationship between the quantity consumers wish to purchase and variables such as price, income and tastes.

Question 12

Imagine that a demand function for lamb in the UK has been constructed. The income coefficient has been estimated as - 0.2. This means that, in the UK, lamb is __________good.

A) a giffen
B) a superior
C) an inferior
D) a normal

Question 13

Which of the following is not one of the factors that could explain fluctuations in time series data?

A) Barometric
B) Trend
C) Seasonal
D) Cyclical

Question 14

In a demand function, which of the following would not be an independent variable?

A) Other prices
B) Price
C) Income
D) Demand

Question 15

If we have estimated a demand function, a problem we will meet in using the function to forecast demand will be the reliability of the

A) demand function.
B) forecasts of changes in the dependent variable(s).
C) forecasts of changes in the independent variable(s).
D) A and C

Question 16

Sofa specialist, Deepseat, estimates its demand function and thinks that the demand for its sofas depends on the sofa's price Pd, the price of sofas sold by Furniture4Us Pf, the volume of carpet sales V and consumer income Y. Which of the following would you expect to be the estimated demand function?

A) Qd = a - bPd - cPf + dV - eY
B) Qd = a - bPd + cPf + dV + eY
C) Qd = a + bPd + cPf - dV - eY
D) Qd = a + bPd - cPf + dV + eY

Question 17

If we are estimating a demand function, we can use sensitivity analysis to

A) forecast future values of the independent variables.
B) estimate the coefficients of the independent variables.
C) assess how much the dependent variable is affected by each of the independent variables.
D) forecast the value of the dependent variable.

Question 18

Which of the following factors would not normally determine the shape of the time path?

A) Short- term shifts in supply
B) Consumer tastes
C) Seasonal fluctuations
D) Short- term shifts in demand

Question 19

Which of the following would not shift a demand curve?

A) A change in production methods
B) A change in income
C) A successful period of advertising
D) All of the above could shift a demand curve.

Question 20

Analysis of market trends in past sales may lead to poor predictions because

A) the structure of the market may have changed over time.
B) it would not involve looking for causal relationships.
C) it would not involve looking at independent variables.
D) all of the above

Question 21

You estimate a demand function and the coefficient on the advertising variable is 0.3. This suggests that previous advertising has

A) shifted the demand curve.
B) been profitable.
C) covered its costs.
D) raised market price.

Question 22

The error term of an econometric model is intended to cover

A) all variables not included in the model.
B) experimental bias.
C) all leading indicators.
D) all independent variables.

Question 23

Observations of market behaviour can be collected by the firm itself.

Question 24

Market experiments are often used to assess the effect of advertising.

Question 25

Observations of market behaviour involve information gathered about consumers from the day- to- day activities of the business within the market.

Question 26

One of the problems in using questionnaires is that respondents may not give truthful answers.

Question 27

One advantage of market surveys is that they can be targeted at specific consumer groups.

Question 28

A market survey should only have complex questions.

Question 29

The major drawback of market experiments is that consumers might behave differently because they are being observed.

Question 30

A market experiment might involve asking customers their opinions of different packaging.

Question 31

When creating a demand function, demand itself is an independent variable.

Question 32

The branch of economics which analyses a time series to predict the future values of that series is called econometrics.

Question 33

Regression analysis is a statistical technique which shows how one variable is related to one or more other variables.

Question 34

Barometric forecasting is a statistical technique which shows how one variable is related to one or more other variables.

Question 35

The error term of an econometric model is intended to cover all leading indicators.

Question 36

A major weakness of barometric forecasting is that most leading indicators only allow forecasting a few months ahead.

Question 37

The trend, cyclical and seasonal factors can all be extracted from a time series.

Question 38

Sensitivity analysis shows how sensitive an outcome is to different variables within an equation.

Question 39

What are market observations?

Question 40

What are market surveys?

Question 41

What are market experiments?

Question 42

What are the main difficulties involved in collecting and interpreting data collected using survey methods?

Question 43

What are the main components into which a time series may be split?

Question 44

What is barometric forecasting?

Question 45

If you were to estimate a demand function using econometric methods, what data would you require?

Question 46

What are the main drawbacks of making plans using econometric data analysis methods?

Question 47

You wish to introduce a new product into an existing market. What data would you wish to collect to assess the potential demand for this product?

Question 48

Explain which demand forecasting tools are likely to be the most useful in the context of a market with a high degree of product innovation.