Deck 3: Quantitative Demand Analysis

Question 1

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:

A) 2.5.
B) 0.4.
C) 2.0.
D) 0.27.

Answer 1

B

Question 2

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?

A) 0.57
B) 1.75
C) 0.02
D) 1.24

Answer 2

B

Question 3

If the demand for a product is Q_x^d = 10 - ln P_x, then product x is:

A) elastic.
B) inelastic.
C) unitary elastic.
D) Cannot be determined without more information.

Answer 3

C

Question 4

The demand curve for a good is horizontal when it is:

A) a perfectly inelastic good.
B) a unitary elastic good.
C) a perfectly elastic good.
D) an inferior good.

Question 5

Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

A) zero.
B) one.
C) infinite.
D) unknown.

Question 6

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) None of the statements is correct.

Question 7

A price elasticity of zero corresponds to a demand curve that is:

A) horizontal.
B) downward sloping with a slope always equal to 1.
C) vertical.
D) either vertical or horizontal.

Question 8

Suppose Q_x^d = 10,000 - 2 P_x + 3 P_y - 4.5M, where P_x = $100, P_y = $50, and M = $2,000. What is the own price elasticity of demand?

A) -2.34
B) -0.78
C) -0.21
D) -1.21

Question 9

If apples have an own price elasticity of -1.2 we know the demand is:

A) unitary.
B) indeterminate.
C) elastic.
D) inelastic.

Question 10

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.

Question 11

If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to:

A) a reduction in total revenue.
B) an increase in total revenue.
C) no change in total revenue.
D) None of the statements is correct.

Question 12

The demand for good X has been estimated by Q_x^d = 12 - 3P_x + 4P_y. 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

Question 13

As we move down along a linear demand curve, the price elasticity of demand becomes more:

A) elastic.
B) inelastic.
C) log-linear.
D) variable.

Question 14

Suppose Q_x^d = 10,000 - 2 P_x + 3 P_y - 4.5M, where P_x = $100, P_y = $50, and M = $2,000. Then good X has a demand which is:

A) elastic.
B) inelastic.
C) unitary.
D) neither elastic, inelastic, nor unitary elastic.

Question 15

Suppose Q_x^d = 10,000 - 2 P_x + 3 P_y - 4.5M, where P_x = $100, P_y = $50, and M = $2,000. How much of good X is consumed?

A) 100 units
B) 500 units
C) 1,100 units
D) 950 units

Question 16

We would expect the demand for jeans to be:

A) more elastic than the demand for clothing.
B) less elastic than the demand for clothing.
C) the same as the demand for clothing.
D) neither more elastic, less elastic, nor the same elasticity as that of the demand for clothing.

Question 17

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

Question 18

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?

A) It will increase 5 percent.
B) It will fall 4.3 percent.
C) It will increase 4.2 percent.
D) It will increase 6 percent.

Question 19

The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is:

A) elastic.
B) unitary.
C) falling.
D) inelastic.

Question 20

Lemonade, a good with many close substitutes, should have an own price elasticity that is:

A) unitary.
B) relatively elastic.
C) relatively inelastic.
D) perfectly inelastic.

Question 21

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:

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.

Question 22

Suppose demand is given by Q_x^d = 50 - 4P_x + 6P_y + A_x, where P_x = $4, P_y = $2, and A_x = $50. What is the quantity demanded of good x?

A) 96
B) 50
C) 46
D) 72

Question 23

We would expect the own price elasticity of demand for food to be:

A) less elastic than the demand for cereal.
B) more elastic than the demand for cereal.
C) the same as that for soap.
D) perfectly inelastic.

Question 24

Suppose the demand for good x is ln Q_x^d = 21 - 0.8 ln P_x - 1.6 ln P_y + 6.2 ln M + 0.4 ln A_x. Then we know good x is:

A) an inferior good.
B) an elastic good.
C) a normal good.
D) a Giffen good.

Question 25

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H. Then the demand for good x is:

A) inelastic.
B) unitary.
C) elastic.
D) perfectly elastic.

Question 26

If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead to a:

A) 10 percent drop in demand for lobster.
B) 16 percent increase in demand for lobster.
C) 20 percent increase in demand for lobster.
D) 4 percent increase in demand for lobster.

Question 27

If the cross-price elasticity between goods A and B is negative, we know the goods are:

A) inferior goods.
B) complements.
C) inelastic.
D) substitutes.

Question 28

Suppose demand is given by Q_x^d = 50 - 4P_x + 6P_y + A_x, where P_x = $4, P_y = $2, and A_x = $50. What is the advertising elasticity of demand for good x?

A) 1.12
B) 0.38
C) 1.92
D) 0.52

Question 29

The elasticity that measures the responsiveness of consumer demand to changes in income is the:

A) income elasticity.
B) own price elasticity.
C) cross-price elasticity.
D) neither the income elasticity, the own price elasticity, nor the cross-price elasticity.

Question 30

Suppose the demand function is Q_x^d = 100 - 8P_x + 6P_y - M. If P_x = $4, P_y = $2, and M = $10, what is the cross-price elasticity of good x with respect to the price of good y?

A) 0.17
B) 0.38
C) 0.21
D) 0.04

Question 31

Suppose the demand for good x is ln Q_x^d = 21 - 0.8 ln P_x - 1.6 ln P_y + 6.2 ln M + 0.4 ln A_x. Then we know goods x and y are:

A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.

Question 32

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?

A) -1.17
B) 2.71
C) 0.42
D) -0.86

Question 33

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?

A) Buy 10.5 percent more peanut butter.
B) Buy 2.14 percent more peanut butter.
C) Buy 6.2 percent less peanut butter.
D) Buy 9.8 percent less peanut butter.

Question 34

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.

Question 35

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H. Then the cross-price elasticity between goods x and y is:

A) 4.00.
B) 0.25.
C) 0.50.
D) 8.33.

Question 36

The statistical analysis of economic phenomena is defined as:

A) econometrics.
B) variance.
C) confidence intervals.
D) standard deviation.

Question 37

Suppose the demand for good x is ln Q_x^d = 21 - 0.8 ln P_x - 1.6 ln P_y + 6.2 ln M + 0.4 ln A_x. Then we know that the own price elasticity for good x is:

A) unitary.
B) elastic.
C) inelastic.
D) It cannot be calculated from the existing information.

Question 38

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H. Then good x is:

A) a normal good.
B) an inferior good.
C) a complement for good y.
D) perfectly inelastic.

Question 39

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?

A) 0.02 percent
B) 38.6 percent
C) 66.7 percent
D) 4.3 percent

Question 40

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

A) own price elasticity.
B) income elasticity.
C) log-linear elasticity.
D) cross-price elasticity.

Question 41

If demand is perfectly inelastic, then:

A) the own price elasticity of demand is infinite in absolute value.
B) a small increase in price will lead to a situation where none of the good is purchased.
C) the demand curve is vertical.
D) None of the statements is correct.

Question 42

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.

Question 43

The demand for good X is estimated to be Q_x^d = 10,000 - 4P_X + 5P_Y + 2M + A_X where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 1,000 units. What is the quantity demanded of good X?

A) 61,500
B) 61,300
C) 61,300 - 4P_X
D) 61,500 - 4P_X

Question 44

Which of the following is used to determine the statistical significance of a regression coefficient?

A) t-statistic
B) F-statistic
C) R-square
D) Adjusted R-square

Question 45

The demand for good X is estimated to be Q_x^d = 10,000 - 4P_X + 5P_Y + 2M + A_X where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 1,000 units. What is the demand curve for good X?

A) 61,500
B) 61,300
C) 61,300 - 4P_X
D) 61,500 - 4P_X

Question 46

The demand for good X is estimated to be Q_x^d = 10, 000 - 4P_X + 5P_Y + 2M + A_X, where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 1,000 units. Based on this information, we know that the demand for good X is:

A) elastic.
B) inelastic.
C) unitary elastic.
D) neither elastic, inelastic, nor unitary elastic.

Question 47

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:

A) increase by 5 percent.
B) increase by 20 percent.
C) decrease by 5 percent.
D) decrease by 20 percent.

Question 48

The demand for good X is estimated to be Q_x^d = 10, 000 - 4P_X + 5P_Y + 2M + A_X, where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 1,000 units. Based on this information, the cross-price elasticity between goods X and Y is:

A) 0.008.
B) -0.08.
C) -0.8.
D) -8.

Question 49

Which of the following measures of fit penalizes a researcher for estimating many coefficients with relatively little data?

A) t-statistic
B) R-square
C) Adjusted R-square
D) Neither the t-statistic, the R-square, nor the adjusted R-square

Question 50

As a rule of thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is:

A) zero.
B) less than one.
C) greater than or equal to 1.
D) greater than or equal to 2.

Question 51

Which of the following can be used to quantify the overall statistical significance of a regression?

A) t-statistic
B) F-statistic
C) R-square
D) The F-statistic and R-square

Question 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?

A) Increase
B) Decrease
C) Remain unchanged
D) Neither increase, decrease, nor remain unchanged

Question 53

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:

A) unitary.
B) zero.
C) very elastic.
D) very inelastic.

Question 54

The demand for good X is estimated to be Q_x^d = 10,000 - 4P_X + 5P_Y + 2M + A_X, where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 1,000 units. What is the own price elasticity of demand for good X?

A) -0.003
B) -0.03
C) -0.3
D) -3

Question 55

The demand for good X is estimated to be Q_x^d = 10,000 - 4P_X + 5P_Y + 2M + A_X, where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 1,000 units. Based on this information, goods X and Y are:

A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.

Question 56

The demand for video recorders has been estimated to be Q_v = 134 - 1.07P_f + 46P_m - 2.1P_v - 5I, where Q_v is the quantity of video recorders, P_f denotes the price of video recorder film, P_m is the price of attending a movie, P_v is the price of video recorders, and I is income. Based on the estimated demand equation we can conclude:

A) video recorders are inferior goods.
B) video recorder film is a substitute for video recorders.
C) the demand for video recorders is inelastic.
D) the demand for video recorders is neither inferior nor inelastic, and video recorder film is not a substitute for video recorders.

Question 57

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:

A) drop by 1.8 percent.
B) increase by 1.8 percent.
C) drop by 0.18 percent.
D) increase by 0.18 percent.

Question 58

Which of the following provides a measure of the overall fit of a regression?

A) t-statistic
B) F-statistic
C) R-square
D) The F-statistic and R-square

Question 59

If the absolute value of the own price elasticity of demand is greater than 1, then demand is said to be:

A) elastic.
B) inelastic.
C) unitary elastic.
D) neither elastic, inelastic, nor unitary elastic.

Question 60

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.

Question 61

The demand for good X has been estimated to be ln Q_x^d = 100 - 2.5 ln P_X + 4 ln P_Y + ln M. The income elasticity of good X is:

A) 4.0.
B) 1.0.
C) 2.0.
D) -2.5.

Question 62

The demand for food (a broad group) is more:

A) elastic than the demand for beef (specific commodity).
B) inelastic than the demand for beef (specific commodity).
C) sensitive to price changes than the demand for beef.
D) responsive to price changes than the demand for beef.

Question 63

Demand tends to be:

A) more elastic in the short term than in the long term.
B) more inelastic in the short term than in the long term.
C) equally elastic in the short term and in the long term.
D) None of the statements is correct.

Question 64

The greater the standard error of an estimated coefficient:

A) the greater the t-value of the estimated coefficient.
B) the lower the t-value of the estimated coefficient.
C) the greater the R-square.
D) the greater the adjusted R-square.

Question 65

When a demand curve is linear,

A) the elasticity is the same as the slope of the demand curve.
B) demand is elastic at high prices.
C) demand is unitary elastic at low prices.
D) the elasticity is constant at all prices.

Question 66

Suppose the income elasticity for transportation is 1.8. Which of the following is an INCORRECT statement?

A) Transportation is a normal good.
B) Expenditures on transportation grow more rapidly than income grows.
C) Expenditures on transportation will fall less rapidly than income falls.
D) Whenever the income increases by 1 percent, the expenditure on transportation increases by 1.8 percent.

Question 67

Non-fed ground beef is an inferior good. In economic booms, grocery managers should:

A) increase their orders of non-fed ground beef.
B) reduce their orders of non-fed ground beef.
C) not change their orders of non-fed ground beef.
D) neither increase, reduce, nor maintain their current orders for non-fed ground beef.

Question 68

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.

Question 69

The demand for good X has been estimated to be ln Q_x^d = 100 - 2.5 ln P_X + 4 ln P_Y + ln M. The own price elasticity of good X is:

A) -2.5.
B) 4.0.
C) -2.5 percent.
D) 4.0 percent.

Question 70

The demand for good X is estimated to be Q_x^d = 10, 000 - 4P_X + 5P_Y + 2M + A_X, where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 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.

Question 71

For a given set of data and a regression equation, the greater the R-square:

A) the greater the t-value.
B) the lower the t-value.
C) the greater the adjusted R-square.
D) the lower the adjusted R-square.

Question 72

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:

A) less than 1.
B) less than 2.
C) greater than 1.
D) greater than 2.

Question 73

The demand for good X is estimated to be Q_x^d = 10, 000 - 4P_X + 5P_Y + 2M + A_X, where P_X is the price of X, P_Y is the price of good Y, M is income, and A_X is the amount of advertising on X. Suppose the present price of good X is $50, P_Y = $100, M = $25,000, and A_X = 1,000 units. Based on this information, good X is:

A) an inferior good.
B) a normal good.
C) a Giffen good.
D) a regular good.

Question 74

Which of the following is NOT an important factor that affects the magnitude of the own price elasticity of a good?

A) Available substitutes
B) Supply of the good
C) Time
D) Expenditure share

Question 75

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.

Question 76

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.

Question 77

The demand for good X has been estimated to be ln Q_x^d = 100 - 2.5 ln P_X + 4 ln P_Y + ln M. The cross-price elasticity of demand between goods X and Y is:

A) -2.5.
B) 4.0.
C) -2.5 percent.
D) 4.0 percent.

Question 78

The lower the standard error:

A) the less confident the manager can be that the parameter estimates reflect the true values.
B) the more confident the manager can be that the parameter estimates reflect the true values.
C) the more precisely the parameter estimates the true values.
D) the less precisely the parameter estimates the true values.

Question 79

The demand for women's clothing is, in general:

A) more elastic than the demand for clothing.
B) less elastic than the demand for clothing.
C) equally elastic to the demand for clothing.
D) neither more elastic, less elastic, nor equally elastic to the demand for clothing.

Question 80

The demand for good X has been estimated to be ln Q_x^d = 100 - 2.5 ln P_X + 4 ln P_Y + ln M. The advertising elasticity of good X is:

A) 4.0.
B) 1.0.
C) 0.0.
D) -2.5.