Question 1

Which of the following is not a determinant of the demand for a good?
A) Its cost of production
B) Expectations
C) The prices of related products
D) Preferences

Accepted Answer

The cost of production is not a determinant of demand for a good; it affects the supply of the good. Demand determinants include factors like expectations, the prices of related products, and preferences, which influence consumers' willingness to purchase a product at a given price.

Question 2

The price of a firm's product increases from $5 to $6. As a result, the quantity demanded of the product declines from 600,000 to 500,000. The arc price elasticity of demand for the good is equal to
A) -5.
B) -3.
C) -1.
D) 0.1.

Accepted Answer

The arc price elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Substituting the given values: [(500,000 - 600,000) / (500,000 + 600,000) / 2] / [(6 - 5) / (6 + 5) / 2] = (-100,000 / 550,000) / (1 / 5.5) = -0.1818 / 0.1818 = -1.

Question 3

The demand function for a product is defined as Q = 24 - 2P. If price is equal to 6, then the price elasticity of demand is
A) elastic.
B) unit elastic.
C) inelastic.
D) There is not enough information to determine the answer.

Accepted Answer

The price elasticity of demand is calculated as (dQ/dP) * (P/Q). Here, dQ/dP = -2, P = 6, and Q = 24 - 2*6 = 12. Thus, elasticity = (-2) * (6/12) = -1, indicating unit elasticity.

Question 4

The demand function for a product is defined as Q = 24 - 2P. If price is equal to 4, then the price elasticity of demand is
A) elastic.
B) unit elastic.
C) inelastic.
D) There is not enough information to determine the answer.

Accepted Answer

The answer of The demand function for a product is...

Question 5

The demand function for a product is defined as Q = 24 - 2P. If price is equal to 8, then the price elasticity of demand is
A) elastic.
B) unit elastic.
C) inelastic.
D) There is not enough information to determine the answer.

Accepted Answer

The price elasticity of demand (PED) is calculated as (dQ/dP) * (P/Q). Here, dQ/dP = -2, P = 8, and Q = 24 - 2*8 = 8. Thus, PED = (-2) * (8/8) = -2, which indicates that the demand is elastic.

Question 6

If a firm reduces the price of its product from $6 to $4 and the quantity demanded of the product increases from 45,000 to 55,000 units per week, then the arc price of elasticity is equal to
A) -10.
B) -1.
C) 0.
D) -0.5.

Accepted Answer

The arc price elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(55,000 - 45,000) / (55,000 + 45,000) / 2] / [(4 - 6) / (4 + 6) / 2] = 10,000 / 50,000 / -2 / 5 = 0.2 / -0.4 = -0.5.

Question 7

A firm faces a linear demand function defined as Q = 120 - 4P. If the price is 5, what is the point price elasticity of demand?
A) 0
B) -0.2
C) -1
D) -2

Accepted Answer

The point price elasticity of demand formula is (P/Q) * (dQ/dP). Substituting P=5 into the demand function gives Q=120-4*5=100. The derivative of Q with respect to P, dQ/dP, is -4. Thus, elasticity = (5/100)*(-4) = -0.2.

Question 8

A firm faces a linear demand function defined as Q = 100 - 3P. If the price is 20, what is the point price elasticity of demand?
A) 0
B) -0.5
C) -1.5
D) -5

Accepted Answer

The answer of A firm faces a linear demand function...

Question 9

The price of a firm's product declines from $15 to $9. As a result, the quantity demanded of the product increases from 60,000 to 100,000. The arc price elasticity of demand for the good is equal to
A) -100.
B) -10.
C) -1.
D) -0.1.

Accepted Answer

The arc price elasticity of demand is calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)]. Plugging in the values: [(100,000 - 60,000) / (100,000 + 60,000)/2] / [(9 - 15) / (9 + 15)/2] = 40,000/80,000 / -6/12 = 0.5 / -0.5 = -1.

Question 10

The price of a firm's product increases from $2.30 to $2.60. As a result, the firm's total revenue decreases from $460,000 to $208,000. The arc price elasticity of demand for the good is equal to
A) -70.
B) -7.
C) -0.7.
D) 0.

Accepted Answer

The arc price elasticity of demand is calculated using the formula: $E_d = \frac{\%\ change\ in\ quantity\ demanded}{\%\ change\ in\ price}$. First, calculate the percentage changes: Price increases from $2.30 to $2.60, a change of $0.30 on an original price of $2.30, which is a 13.04% increase ($\frac{0.30}{2.30} \times 100$). Revenue decreases from $460,000 to $208,000, a change of $252,000 on an original revenue of $460,000, which is a 54.78% decrease ($\frac{252,000}{460,000} \times 100$). Assuming the price increase is the sole reason for the revenue decrease, this change in revenue reflects a change in quantity demanded. Thus, $E_d = \frac{-54.78}{13.04} \approx -4.2$. However, none of the provided options match this calculation, suggesting a mistake in the calculation process or a misunderstanding of the question's requirements. Given the options, the correct approach to calculating elasticity might involve a different interpretation or method, but based on standard elasticity calculation methods, the provided answer choices do not align with the typical calculation outcome.

Question 11

As the economy emerged from the most recent recession, household income rose by 6 percent. Over the same period, total expenditures on beef increased by 3 percent. Assuming that all other economic variables were held constant,
A) the income elasticity of demand must be equal to 2.
B) beef must be a normal good.
C) beef must be an inferior good.
D) Both A and B are correct.

Accepted Answer

Beef is considered a normal good because as household income rose, expenditures on beef also increased, indicating that people buy more beef as their income increases. This is characteristic of a normal good. The information provided does not allow us to calculate the income elasticity of demand directly, so we cannot confirm choice A, and there is no indication that beef is an inferior good, which would imply that demand decreases as income increases, ruling out choice C.

Question 12

As the economy descended into the most recent recession, household income fell by 5 percent. Over the same period, total expenditures on automobile repairs increased by 3 percent. Assuming that all other economic variables were held constant,
A) the income elasticity of demand is equal to 0.6.
B) automobile repairs must be a normal good.
C) automobile repairs must be an inferior good.
D) Both A and B are correct.

Accepted Answer

The increase in expenditures on automobile repairs despite a decrease in household income suggests that automobile repairs are an inferior good, as demand for them increases when income decreases.

Question 13

The level of household income rose from $28,000 to $30,000 and the number of eggs consumed annually per capita increased from 140 to 150. Assuming that all other economic variables were held constant,
A) the arc income elasticity of demand is equal to 5.
B) the arc income elasticity of demand is equal to 1.
C) the arc income elasticity of demand is equal to -5.1
D) eggs are an inferior good and none of the above is correct.

Accepted Answer

The arc income elasticity of demand can be calculated using the formula: [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(I2 - I1) / ((I2 + I1)/2)], where Q1 and Q2 are the initial and final quantities demanded, and I1 and I2 are the initial and final incomes. Plugging in the given values: [(150 - 140) / (150 + 140)/2] / [($30,000 - $28,000) / ($30,000 + $28,000)/2] = 10/145 / 2000/29000 = 0.069 / 0.069 = 1. This means that for a 1% increase in income, the quantity demanded of eggs increases by 1%, indicating that eggs are a normal good, not an inferior good.

Question 14

An increase in the price of hot dogs from $1.60 to $2.00 per pound increased the average number of hamburgers demanded per capita per week from 1 to 1.4. Assuming that all other economic variables were held constant, the arc cross-price elasticity of demand between hot dogs and hamburgers is
A) -1.5, which indicates that the two goods are substitutes.
B) -1.5, which indicates that the two goods are complements.
C) 1.5, which indicates that the two goods are substitutes.
D) 1.5, which indicates that the two goods are complements.

Accepted Answer

The arc cross-price elasticity of demand is calculated as [(Q2 - Q1) / ((Q2 + Q1)/2)] / [(P2 - P1) / ((P2 + P1)/2)], where Q1 and Q2 are the initial and final quantities demanded of hamburgers, and P1 and P2 are the initial and final prices of hot dogs. Substituting the given values, we get [(1.4 - 1) / (1.4 + 1)/2] / [(2 - 1.6) / (2 + 1.6)/2] = 0.4 / 0.4 = 1. The positive value indicates that the goods are substitutes, as the increase in the price of hot dogs leads to an increase in the demand for hamburgers.

Question 15

The price elasticity of demand for a firm's product is equal to -1.8. The firm currently sells 4,000 units per day at a price of $2. If the firm increases its product price by 10 percent, then it can expect to sell approximately
A) 4,280 units.
B) 3,280 units.
C) 2,720 units.
D) 1,980 units.

Accepted Answer

The price elasticity of demand is -1.8, meaning a 10% increase in price will lead to an 18% decrease in quantity demanded. 18% of 4,000 units is 720 units, so the firm can expect to sell approximately 3,280 units (4,000 - 720).

Question 16

If the price elasticity of demand for a firm's product is -2 and the product's price is $4, then marginal revenue is equal to
A) $4.
B) $3.
C) $2.
D) $1.

Accepted Answer

The formula for marginal revenue (MR) when price elasticity of demand (E) is given is MR = P(1 + 1/E). Substituting the values, MR = 4(1 + 1/(-2)) = 4(1 - 0.5) = 4 * 0.5 = $2.

Question 17

If marginal revenue is $20 when the price of a product is $40, then the price elasticity of demand is
A) -2.
B) -1.
C) -0.50.
D) -0.25.

Accepted Answer

The price elasticity of demand (PED) can be calculated using the formula: PED = (P/MR) - 1. Given P = $40 and MR = $20, PED = (40/20) - 1 = 2 - 1 = 1. Since elasticity is negative for demand, the correct answer is -2.

Question 18

If the price elasticity of demand for a product is -5.0, and the income elasticity of demand for the product is 2.5, then the firm's total revenue will remain constant if a 1 percent decrease in consumer income is accompanied by a
A) 0.5 percent increase in product price.
B) 0.5 percent decrease in product price.
C) 2 percent increase in product price.
D) 2 percent decrease in product price.

Accepted Answer

The answer of If the price elasticity of demand for...

Question 19

If the price elasticity of demand for a product is -1.0, and the cross-price elasticity of demand for the product with respect to a competitor's product is 5.0, then the firm's total revenue will remain constant if a 1 percent increase in the price of the competitor's product is accompanied by
A) a 1 percent increase in the price of the firm's product.
B) a 5 percent decrease in the price of the firm's product.
C) a 5 percent increase in the price of the firm's product.
D) None of the above is correct.

Accepted Answer

The answer of If the price elasticity of demand for...

Question 20

A firm's marginal cost is equal to $8 for all levels of production. If the firm's price elasticity of demand is equal to -2.0, what price should be charged in order to maximize profit?
A) $16
B) $12
C) $8
D) $4

Accepted Answer

To maximize profit, a firm should set its price according to the rule P = MC / (1 + 1/E), where P is the price, MC is the marginal cost, and E is the price elasticity of demand. Substituting the given values, P = $8 / (1 + 1/(-2)) = $8 / (1 - 1/2) = $8 / (1/2) = $16.

Quiz 4: Demand Theory

Which of the following is not a determinant of the demand for a good?

The price of a firm's product increases from $5 to $6. As a result, the quantity demanded of the product declines from 600,000 to 500,000. The arc price elasticity of demand for the good is equal to

The demand function for a product is defined as Q = 24 - 2P. If price is equal to 6, then the price elasticity of demand is

The demand function for a product is defined as Q = 24 - 2P. If price is equal to 4, then the price elasticity of demand is

The demand function for a product is defined as Q = 24 - 2P. If price is equal to 8, then the price elasticity of demand is

If a firm reduces the price of its product from $6 to $4 and the quantity demanded of the product increases from 45,000 to 55,000 units per week, then the arc price of elasticity is equal to

A firm faces a linear demand function defined as Q = 120 - 4P. If the price is 5, what is the point price elasticity of demand?

A firm faces a linear demand function defined as Q = 100 - 3P. If the price is 20, what is the point price elasticity of demand?

The price of a firm's product declines from $15 to $9. As a result, the quantity demanded of the product increases from 60,000 to 100,000. The arc price elasticity of demand for the good is equal to

The price of a firm's product increases from $2.30 to $2.60. As a result, the firm's total revenue decreases from $460,000 to $208,000. The arc price elasticity of demand for the good is equal to

As the economy emerged from the most recent recession, household income rose by 6 percent. Over the same period, total expenditures on beef increased by 3 percent. Assuming that all other economic variables were held constant,

As the economy descended into the most recent recession, household income fell by 5 percent. Over the same period, total expenditures on automobile repairs increased by 3 percent. Assuming that all other economic variables were held constant,

The level of household income rose from $28,000 to $30,000 and the number of eggs consumed annually per capita increased from 140 to 150. Assuming that all other economic variables were held constant,

An increase in the price of hot dogs from $1.60 to $2.00 per pound increased the average number of hamburgers demanded per capita per week from 1 to 1.4. Assuming that all other economic variables were held constant, the arc cross-price elasticity of demand between hot dogs and hamburgers is

The price elasticity of demand for a firm's product is equal to -1.8. The firm currently sells 4,000 units per day at a price of $2. If the firm increases its product price by 10 percent, then it can expect to sell approximately

If the price elasticity of demand for a firm's product is -2 and the product's price is $4, then marginal revenue is equal to

If marginal revenue is $20 when the price of a product is $40, then the price elasticity of demand is

If the price elasticity of demand for a product is -5.0, and the income elasticity of demand for the product is 2.5, then the firm's total revenue will remain constant if a 1 percent decrease in consumer income is accompanied by a

If the price elasticity of demand for a product is -1.0, and the cross-price elasticity of demand for the product with respect to a competitor's product is 5.0, then the firm's total revenue will remain constant if a 1 percent increase in the price of the competitor's product is accompanied by

A firm's marginal cost is equal to $8 for all levels of production. If the firm's price elasticity of demand is equal to -2.0, what price should be charged in order to maximize profit?