Question 1

The quantity demanded of a commodity will decrease if
A) the price of a compliment increases.
B) income rises and the good is inferior.
C) the price of a substitute decreases.
D) the commodity's price increases.

Accepted Answer

D

Question 2

Most goods are normal.

Accepted Answer

Most goods are considered normal goods, meaning that demand for them increases as consumer income increases.

Question 3

If the independent individual consumer demand curves for a commodity are horizontally summed, the result is the market demand curve for the commodity.

Accepted Answer

Horizontally summing individual demand curves aggregates the quantities demanded by all consumers at each price level, resulting in the market demand curve for that commodity.

Question 4

If the consumption decisions of individual consumers are not independent, then the horizontal sum of individual consumer demand curves is the market demand curve for the commodity.

Accepted Answer

The horizontal sum of individual consumer demand curves assumes that consumption decisions are independent. If they are not independent, external factors like network effects or consumption externalities affect individual demands, making the simple horizontal summation inaccurate for representing market demand.

Question 5

If consumers expect the price of a commodity to increase in the future, then demand for the commodity will decrease.

Accepted Answer

If consumers expect the price of a commodity to increase in the future, they are more likely to purchase it now to avoid paying a higher price later, thus increasing current demand.

Question 6

Consumers find it easier to postpone the purchase of a durable good than to postpone the purchase of a nondurable good, so the demand for the durable goods is more unstable than the demand for nondurable goods.

Accepted Answer

Durable goods, such as appliances and cars, have a longer lifespan, allowing consumers to delay purchases during economic downturns or uncertainty, leading to more fluctuating demand. In contrast, nondurable goods like food and hygiene products are consumed more regularly and cannot be easily postponed, resulting in more stable demand.

Question 7

The arc price elasticity of demand measures the price elasticity at a point on the demand curve.

Accepted Answer

The arc price elasticity of demand measures the price elasticity over a range of prices on the demand curve, not at a single point.

Question 8

If a firm is a perfect competitor, then its marginal revenue is equal to the price of its commodity.

Accepted Answer

In perfect competition, each firm faces a horizontal demand curve at the market price, meaning the price of the commodity does not change with the quantity sold by the firm. Therefore, the additional revenue gained from selling one more unit (marginal revenue) is equal to the constant market price of the commodity.

Question 9

If a firm is not a perfect competitor, then its marginal revenue is greater than the price of its commodity.

Accepted Answer

In imperfect competition, a firm's marginal revenue is typically less than the price of its commodity because it must lower the price on all units sold to sell an additional unit.

Question 10

An increase in the number of available substitutes for a commodity will decrease the price elasticity of demand for the commodity.

Accepted Answer

An increase in the number of available substitutes for a commodity actually increases the price elasticity of demand for that commodity, as consumers can more easily switch to alternatives if the price of the commodity rises.

Question 11

The long-run price elasticity of demand for a commodity is generally greater than the short-run price elasticity of demand for the commodity.

Accepted Answer

In the long run, consumers have more time to adjust their behavior and find substitutes, making the demand for a commodity more sensitive to price changes than in the short run.

Question 12

The cross-price elasticity of demand measures the percentage change in the demand for one good that results from a one percent change in the quantity demanded of a second good.

Accepted Answer

The cross-price elasticity of demand measures the percentage change in the demand for one good that results from a one percent change in the price of a second good, not the quantity demanded of the second good.

Question 13

If two goods are very close complements, then the cross-price elasticity of demand between the two goods will be large and negative.

Accepted Answer

The cross-price elasticity of demand for complements is negative because an increase in the price of one good leads to a decrease in the demand for the other. If they are very close complements, this effect is stronger, resulting in a larger negative value.

Question 14

It is likely that the cross-price elasticity of demand between two goods produced by different firms in the same industry will be positive and large.

Accepted Answer

In the same industry, goods produced by different firms are often substitutes for each other, meaning if the price of one good increases, consumers are likely to switch to the other good, leading to a positive and potentially large cross-price elasticity of demand.

Question 15

Estimates of demand elasticities are used by firms to determine optimal operational policies.

Accepted Answer

Estimates of demand elasticities help firms understand how sensitive the demand for their product is to changes in price, income, or other factors, allowing them to make informed decisions about pricing, production, and marketing strategies to maximize profits or achieve other operational goals.

Question 16

Decreased barriers to international trade have increased the differences in consumer preferences between countries.

Accepted Answer

Decreased barriers to international trade have generally led to a convergence in consumer preferences across countries, as people are exposed to and adopt products, brands, and cultural influences from around the world.

Question 17

The international convergence in tastes has progressed to the point where there are virtually no international differences in consumer preferences.

Accepted Answer

While there has been significant convergence in tastes and consumer preferences due to globalization and the spread of global brands, significant differences still exist due to cultural, economic, and social factors.

Question 18

Improved telecommunication technology has contributed to the globalization of markets.

Accepted Answer

Improved telecommunication technology allows for instant communication and data exchange across the globe, making it easier for businesses to operate internationally, thus contributing to the globalization of markets.

Question 19

Middle-class life styles are fundamentally different in different countries.

Accepted Answer

The answer of Middle-class life styles are fundamentally different in...

Question 20

Electronic commerce currently accounts for no more than 10% of total U.S. retail sales.

Accepted Answer

As of my last update, electronic commerce (e-commerce) accounts for a larger portion of total U.S. retail sales, significantly exceeding 10%. The percentage has been growing steadily over the years, especially with the increase in online shopping trends and technological advancements.

Quiz 2: Demand Theory

The quantity demanded of a commodity will decrease if