Deck 4: Individual and Market Demand

Question 1

One aggregates individual demand curves by

A)Adding horizontally
B)Adding vertically
C)Adding horizontally and subtracting vertically
D)Adding vertical and subtracting horizontally

Answer 1

A

Question 2

The point on a linear demand curve where revenue is maximized is

A)Where elasticity equals -1
B)Where elasticity equals 0
C)Where elasticity equals infinity
D)Where the price is the highest

Answer 2

A

Question 3

The demand curve for a Giffin good

A)Slopes upward
B)Slopes downward
C)Is a straight line
D)Is convex

Answer 3

A

Question 4

For demand function P = 24 - 6Q

A)Demand is elastic at price 16
B)Demand is elastic at price 12
C)Demand is elastic at price 2
D)Demand has unitary elasticity at all points on the function

Question 5

Suppose the price of public transportation increases.You know that the income effect of this increase is 5, the substitution effect is 10, but you do not know the signs. The total effect of the increase in the price of public transport could be either:

A) 15 or 5
B) 5 or - 5
C) -15 or 15
D) 5 or -15

Question 6

Comparing the income effects between salt and housing,

A)The income effect for salt will be greater
B)The income effect for housing will be greater
C)The two income effects will be about the same
D)The two income effects will be in the opposite direction

Question 7

Price elasticity of demand is

A)The percentage change in quantity demanded divided by the percentage change in price
B)The change in price divided by the change in quantity
C)The change in quantity divided by the change in price
D)The percent change in price divided by the change in quantity

Question 8

An Engel curve

A)Always slopes up for an inferior good
B)Always slopes down for an inferior good
C)May slope up or down for a normal good
D)Does not relate to the normal or inferior good concepts

Question 9

The price consumption curve shows us

A)Whether we spend more or less on a commodity when its price changes
B)The changes in nominal income that occur for a price change of a good
C)The substitution effect of a price change
D)The total effect of a price change

Question 10

If the demand for widgets is inelastic, revenues will ______ if the price of widgets increases.

A)Increase
B)Fall
C)Remain the same
D)One cannot tell what will happen to revenues without specific elasticity numbers

Question 11

The income effect

A)Moves in the opposite direction from the substitution effect for an inferior good
B)Moves in the same direction as the substitution effect for an inferior good
C)Relates to increases in nominal rather than real income
D)Is always greater than the substitution effect

Question 12

The income consumption curve

A)Always goes through the origin
B)Is always a straight line
C)Has income on the vertical axis
D)Is the same as the Engle curve

Question 13

At $5 Joe buys 1 pen; at $1 he buys 3 pens.What is the arc elasticity over this range?

A)-1.5
B)-.66
C)1
D)-0.75

Question 14

As one moves southeast on a linear demand curve

A)Demand becomes more elastic
B)Demand becomes more inelastic
C)Elasticity stays the same
D)One cannot tell what happens to elasticity unless the slope of demand is known

Question 15

The formula for elasticity is given by

A) $\triangle Q/ Q / \Delta P /P$
B)(Q/P)(slope)
C)(P/Q)(slope)
D)(Q/P)(1/slope)

Question 16

For a Giffin good

A)The income effect is greater than the substitution effect
B)The income effect is less than the substitution effect
C)The income effect is in the same direction of the substitution effect
D)The income effect is the same as the substitution effect

Question 17

As one moves southeast on a downward sloping demand curve

A)Demand becomes more elastic
B)Demand becomes more inelastic
C)Elasticity stays the same
D)One cannot tell what happens to elasticity unless the demand curve is linear

Question 18

The Engel curve for a Giffin good

A)Slopes upward
B)Slopes downward
C)Is a straight line
D)Is convex

Question 19

The substitution effect is

A)Always greater than the income effect
B)Always less than the income effect
C)Never greater than the income effect
D)Sometimes less than the income effect

Question 20

If the price consumption curve of good X, which is on the horizontal axis, slopes downward, we can be sure that

A)Consumers spend less money on X even though they buy more of it
B)Consumers spend the same proportion of their budget on X
C)Consumers spend more money on X but they get more of X
D)Consumers spend more money on X but they get less of X

Question 21

A demand curve which has unit elasticity is

A)Horizontal
B)Vertical
C)Linear
D)Concave from above

Question 22

In the graph above, which of the following price-quantity data would be part of the demand curve derived from the graph above?

A)Price = 200, quantity = 40
B)Price = 40, quantity = 23
C)Price = 25, quantity = 20
D)Price = 5, quantity = 23

Question 23

Using the point method the price elasticity of demand for the demand curve P = 20 - 2Q, when P = 30 is:

A) 3
B) 12
C) 0.33
D) 0.08

Question 24

The substitution effect of a Giffin good is:

A) Positive
B) Positive or Negative
C) Negative
D) Zero

Question 25

The income elasticity of a Giffin good

A)Is positive
B)Is negative
C)Is zero
D)Can not be specified without more information

Question 26

A vertical demand curve is

A)Perfectly elastic
B)Perfectly inelastic
C)Unit elastic
D)Has elasticity of zero

Question 27

Which of the following goods is likely to have the lowest elasticity of demand?

A)Milk
B)Diamonds
C)Furniture
D)Automobile

Question 28

Given these two individual demand curves, what is the equation for the market demand curve?

A)i) P = 100 - 5Q ii) P = 100 - 10/3Q
B)P = 100 - 2Q
C)P = 200 - 8.33Q
D)P = 100 - 8.33Q

Question 29

The income elasticity of demand for an inferior good could be

A)Positive
B)Negative
C)Zero
D)Any one of the above depending on the other factors involved

Question 30

Which of the following goods are likely to have a positive cross-price elasticity?

A)Butter and margarine
B)Tires and automobiles
C)Pepsi and pizza
D)Peanut butter and jelly

Question 31

Which statement is definitely true about shelter in the graph above.

A)The demand curve is negatively sloped over the price range shown
B)It is clearly a normal good throughout the range shown
C)It is an inferior good throughout the range shown
D)The income and substitution effects must be shown before any of the above statements can be definitely true

Question 32

A linear demand curve

A)Can have constant elasticity if its slope is more than one
B)Will have an ever rising total revenue function
C)Becomes less elastic as price falls
D)Always has a constant elasticity

Question 33

The cross-price elasticity of demand for complements is

A)Is positive
B)Is negative
C)Is zero
D)Can not be specified without more information

Question 34

Your income rises from $1,000 a year to $10,000 and your purchases of beer increase from 10 to 20.What number below most closely approximates your income elasticity over this range?

A)4
B).4
C)2.5
D)1

Question 35

In the graph above, as the consumer moves from indifference curve 1 to 3, his

A)Real income is rising and his nominal income is constant
B)Real income is falling, and his nominal income is rising
C)Real income is falling and nominal income is constant
D)Real and nominal income are falling, but he can buy more anyway

Question 36

Say the demand curve for cigarettes was given by Q = 164 - 0.38P. When P = 20, a further increase in the price will:

A) increase total revenue
B) decrease total revenue
C) leave total revenue the same
D) we can't answer with the information given

Question 37

Which of the following is likely to increase the elasticity of demand for a good?

A)A decrease in the availability of close substitutes
B)A longer period of time
C)A smaller share of income designated for the good in question
D)A decrease in the price

Question 38

A horizontal demand curve is

A)Perfectly elastic
B)Perfectly inelastic
C)Unit elastic
D)Has elasticity of zero

Question 39

Which of the following two goods is likely to have a negative cross-price elasticity of demand?

A)Left and right shoes
B)Margarine and butter
C)Coke and Pepsi
D)Peanut butter and tuna fish

Question 40

A war in the Middle-East increases the price of oil.Suppose that the price hike holds.Over what period of time would you expect the largest change in quantity?

A)1 day
B)1 week
C)1 month
D)1 year

Question 41

Based on your sketch, is the good a normal or inferior good?

Question 42

The following two individual demand curves represent the entire market for a commodity.What is the market demand curve for the commodity? Show the market demand in equation and graphical form.(a) P = 60 - 10Q (b) P = 60 - 15Q

Question 43

From the graph given, sketch two points on an individual demand curve that you draw directly below the graph presented

Question 44

(Appendix) An income compensated demand curve

A)Is steeper than an ordinary demand curve for a normal good
B)Is flatter than an ordinary demand curve for an inferior good
C)Of a Giffin good will be negatively sloped
D)Is described accurately by all of the above statements

Question 45

Say you a kiosk where you sell T-shirts to other students.After conducting a quick survey you find that at the current price the price elasticity of demand for your T-shirts is inelastic.Knowing this, if you wanted to increase the total revenue from selling T-shirts you should:

A)Increase the price
B)Lower the price
C)Leave the price as it is
D)Sell more T-shirt

Question 46

Which statement is definitely true about shelter in the above graph?

A)It is a normal good throughout the range shown
B)It is an inferior good throughout the range shown
C)It has a positively sloped section in its demand curve
D)The income and substitution effects must be shown before any of the above statements can be definitely true

Question 47

Say a study reveals that price elasticity of demand for teenage smoking was -0.5. If the government imposed a tax on cigarettes the total expenditure teenagers spend on buying cigarettes would:

A)increase
B)decrease
C)stay the same
D)we can't answer with the information given

Question 48

According to the graph, the income effect of a decrease in the price of X from $2 to $1 is equal to:

A)5
B)30
C)20
D)25

Question 49

According to the graph, the substitution effect of a decrease in the price of X from $2 to $1 is equal to:

A)5
B)30
C)20
D)25

Question 50

(Appendix) A demand function that has a unitary elasticity at every point

A)Will be a horizontal line
B)Will be negatively sloped and a straight line
C)Will have a positive slope when price is low
D)Will have a declining slope as price falls

Question 51

Assume that the price-consumption curve is horizontal.What additional information does that tell you about the demand for good X and the amount people spend on it?

Question 52

One of the management groups is arguing for a price reduction as a way to sell more gallons and increase income.Is this a good suggestion?

Question 53

If there are no costs in selling mineral water what price should a profit maximizer charge?

Question 54

In the graph above, as the consumer moves from indifference curve 1 to 3, his

A)Real income is constant and his nominal income is rising
B)Real income is rising and his nominal income is constant
C)Real and nominal income are rising
D)Real and nominal income are falling, but the consumer can buy more anyway

Question 55

According to the graph, the total effect of a decrease in the price of X from $2 to $1 is equal to:

A)5
B)30
C)20
D)25

Question 56

Which of the following price-quantity data would not be part of the demand curve derived from the graph above?

A)Price = 0, quantity = 10
B)Price = 10, quantity = 5
C)Price = 4, quantity = 14
D)Price = 2, quantity = 12

Question 57

For the demand function P = 24 - 3Q

A)Demand is inelastic at price 16
B)Total revenue is maximized at price 12
C)Unitary elasticity occurs at price 2
D)Demand is elastic at price 12

Question 58

On the graph below sketch the income and substitution effects of a price increase for good X

Question 59

Other things equal, which of the following goods would have the most inelastic price elasticity of demand?

A)A t-shirt from The Gap (a famous American retail store)
B)All red t-shirt sold in the US
C)All shirts, of any color, sold in the US
D)A red t-shirt from Macy's ( a large department store)

Question 60

For the demand function P = 50 - 5Q

A)A producer would do well to price at 50
B)A producer could give away only 20
C)The total revenue is the same whether the price is 20 or 30
D)A producer would do well to price at 40