Question 1

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when Q is equal to 5, average revenue and marginal revenue are equal to ________ and ________.
A)$75; $75.
B)$85; $85.
C)$75; $60.
D)$⁶⁰; $⁶⁰.

Accepted Answer

To find the average revenue, we need to divide the total revenue (TR) by the quantity sold (Q). Total revenue is equal to price (P) times quantity sold (Q), so:

TR = P × Q
TR = (90 - 3Q) × Q
TR = 90Q - 3Q^2

Now, to find the average revenue, we divide TR by Q:

AR = TR/Q
AR = (90Q - 3Q^2)/Q
AR = 90 - 3Q

When Q is equal to 5, AR = 75.

To find the marginal revenue, we take the derivative of TR with respect to Q:

MR = dTR/dQ
MR = 90 - 6Q

When Q is equal to 5, MR = 60.

Therefore, the answer is C, $75 for average revenue and $60 for marginal revenue.

Question 2

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general.Ceteris paribus, we would expect the price elasticity of demand in absolute value to be:
A)larger for Levi's brand blue jeans than for blue jeans in general.
B)larger for blue jeans in general than for Levi's brand blue jeans.
C)approximately the same for both Levi's brand blue jeans and blue jeans in general.
D)none of the above because the market for blue jeans cannot be analyzed using the model of supply and demand.

Accepted Answer

Consumers tend to be more brand loyal when it comes to certain products such as clothing. Therefore, the price elasticity of demand for a specific brand (Levi's) is likely to be higher than for the entire market of blue jeans.

Question 3

Which of the following statements is correct?
A)In the case of a linear demand curve, the slope and the price elasticity of demand are equal at each point on the demand curve.
B)The slope of the demand curve is some constant value, but the value of the price elasticity coefficient decreases as we move down the demand curve.
C)The slope of the demand curve is some constant value, but the value of the price elasticity coefficient increases as we move down the demand curve.
D)There is no connection between the slope of the demand curve and the value of the price elasticity coefficient.

Accepted Answer

The slope of a demand curve is constant in the case of a linear demand curve, but the price elasticity of demand varies along the curve. It decreases as we move down the curve because elasticity depends not just on the slope but also on the price and quantity levels at any given point.

Question 4

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?
A)Quantity demanded will be relatively sensitive to the change in price.
B)The percentage change in quantity demanded will be quite small relative to the percentage change in price.
C)The percentage change in price will be quite large relative to the percentage change in quantity demanded.
D)Demand will tend to be unitary elastic as it is for most goods in the long run.

Accepted Answer

When consumers have a great deal of time to adjust to a price increase, they can find alternatives or change their consumption habits, making the quantity demanded more sensitive to price changes. This is known as having a more elastic demand.

Question 5

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of demand for pizzas is:
A)0)67.
B)1)5.
C)2)0.
D)3)0.

Accepted Answer

The answer of If the local pizzeria raises the price...

Question 6

Which of the following is not considered to be a determinant of the price elasticity of demand for a particular good?
A)The number of available substitutes.
B)The cost of the good relative to total income.
C)The quantity of the good that is supplied to the market.
D)The time period under consideration.

Accepted Answer

The quantity of the good that is supplied to the market is not considered to be a determinant of the price elasticity of demand. The determinants of price elasticity of demand are factors that affect consumers' responsiveness to price changes. These include the availability of substitutes, the cost of the good relative to total income, the time period under consideration, and other factors that affect consumers' decision-making processes.

Question 7

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?
A)It accounts for a small part of the consumer's total income.
B)The good has many available substitutes.
C)It is a non-durable (as opposed to a durable good).
D)There is little time for the consumer to adjust to the price change.

Accepted Answer

When a good has many available substitutes, consumers have more options to switch to if the price of the good increases, making demand for that good more elastic.

Question 8

Assume an analyst has been hired to estimate the price elasticity of demand for hamburger (which sells for about $2.30 per pound)and filet mignon (which sells for about $20 per pound), respectively.Considering the different determinants of the price elasticity of demand and assuming the consumers in both markets have approximately the same incomes, we would expect the coefficient of price elasticity of demand in absolute value to be:
A)larger for hamburger than for filet mignon.
B)larger for filet mignon than for hamburger.
C)approximately the same for both hamburger and filet mignon.
D)none of the above because different determinants would have opposing effects on the two estimates.

Accepted Answer

The price elasticity of demand is generally higher for luxury goods (like filet mignon) than for necessities (like hamburger), because consumers are more sensitive to price changes for luxury goods. Filet mignon, being significantly more expensive and less of a necessity, would likely have a higher price elasticity of demand.

Question 9

The last time the U.S.Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase.It can be concluded that:
A)both groups believe demand is elastic, but for different reasons.
B)both groups believe demand is inelastic, but for different reasons.
C)the Post Office believes demand for mail service is elastic; opponents of the price increase believe demand is inelastic.
D)the Post Office believes demand for mail service is inelastic; opponents of the price increase believe demand is elastic.

Accepted Answer

The opponents of the price increase argue that the Post Office's revenues would actually decline as a result of the price increase, indicating that they believe demand for mail service is elastic. On the other hand, the fact that the Post Office raised prices suggests they believe demand is inelastic. Therefore, the best choice is D - the Post Office believes demand for mail service is inelastic; opponents of the price increase believe demand is elastic.

Question 10

Many unions attempt to raise the hourly wages received by their members by restricting the supply of workers firms can hire from.Assuming the demand for workers who belong to these unions is inelastic, this would cause:
A)wages of individual union members to decrease and the total (combined)income of union members to increase.
B)wages of individual union members and the total (combined)income of union members to decrease.
C)wages of individual union members to increase and the total (combined)income of union members to decrease.
D)wages of individual union members and the total (combined)income of union members to increase.

Accepted Answer

When the supply of workers is restricted and the demand for those workers is inelastic, wages for individual union members increase because employers are willing to pay more for the limited labor available. Additionally, the total income of union members increases because the higher wages more than offset the reduced number of workers.

Question 11

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, the corresponding total revenue function is:
A)6Q.
B)90 - 6Q.
C)90 - 3Q.
D)90Q - 3Q².

Accepted Answer

Total Revenue (TR) is calculated by multiplying the quantity sold (Q) by the price per unit (P). Therefore, TR = P*Q. Given P = 90 - 3Q, we can substitute this into the TR equation to obtain TR = (90 - 3Q)*Q = 90Q - 3Q². Therefore, the corresponding total revenue function is D) 90Q - 3Q².

Question 12

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?
A)Senior citizens tend to have relatively more elastic demands for restaurant meals than other consumer groups.
B)Senior citizens tend to have relatively more inelastic demands for restaurant meals. than other consumer groups.
C)Senior citizens are not very sensitive to changes in prices.
D)Senior citizens are easily fooled by "come-ons" and are therefore frequently victims of price discrimination.

Accepted Answer

Senior citizens often have more elastic demands for restaurant meals, meaning their demand changes more significantly with price changes. Offering discounts can attract more senior customers who might otherwise consider dining out too expensive.

Question 13

According to one study, the price elasticity of demand for restaurant meals is -2.27.This implies that if restaurants want to increase their total revenues they should:
A)increase prices.
B)decrease prices.
C)leave prices unchanged.
D)cannot be determined with the information given.

Accepted Answer

With a price elasticity of demand of -2.27, this means that a 1% increase in price will result in a 2.27% decrease in quantity demanded. Therefore, if restaurants want to increase their total revenues, they should decrease their prices as the increase in demand from lower prices will outweigh the loss from the lower price.

Question 14

In the long run, the price elasticity of demand is ________ than in the short run because ________.
A)less; consumers have more time in which to make adjustments to price changes
B)less; the percentage change is measured over a larger amount of time
C)greater; consumers have more time in which to make adjustments to price changes
D)greater; firms have more time to shift the burden of the tax forward to consumers

Accepted Answer

In the long run, consumers have more time to find substitutes for the good and adjust their consumption patterns, making the price elasticity of demand greater. In the short run, consumers may have fewer options and may be more willing to pay higher prices, making the price elasticity of demand less.

Question 15

In which of the following cases would the price elasticity of demand be expected to increase?
A)The number of close substitutes for the good increases.
B)The time period under consideration decreases.
C)The cost of the good relative to total income decreases.
D)The supply of the good increases.

Accepted Answer

When there are more close substitutes for a good, consumers have more options to choose from, which makes them more price sensitive. Therefore, the price elasticity of demand would increase.

Question 16

Which of the following statements is correct?
A)Arc elasticity of demand is the same as the slope of the demand curve.
B)Arc elasticity of demand only applies to a nonlinear demand curve.
C)Point elasticity of demand is measured at each point along a demand curve.
D)Point elasticity of demand is measured between two adjacent points on a demand curve.

Accepted Answer

Point elasticity of demand is measured at a specific point on a demand curve, whereas arc elasticity of demand measures the elasticity between two points on a demand curve. Point elasticity can be calculated at any point on a linear or nonlinear demand curve. Therefore, option C is correct. Options A, B, and D are incorrect.

Question 17

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple.The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons.What is the arc price elasticity of demand for movies?
A)0)5
B)0)8
C)1)0
D)1)2

Accepted Answer

The answer of Suppose the price of movies seen at...

Question 18

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will:
A)tend to become more price elastic.
B)tend to become more price inelastic.
C)tend to become closer to unit elastic.
D)tend toward being perfectly elastic.

Accepted Answer

The answer of As the percentage of the consumer's income...

Question 19

A car dealer wants to get rid of the stock of last year's model.Assume that the dealer knows from past experience that the price elasticity of demand for cars is unitary (= 1).If the price of the cars is currently $20,000 and the dealer wants to increase the quantity demanded from 30 units to 50 units, what must the new price be if the dealer is to sell the 20 additional cars?
A)$10,000
B)$12,000
C)$16,000
D)$18,000

Accepted Answer

With unitary price elasticity of demand, the percentage change in quantity demanded is equal to the percentage change in price. To increase quantity demanded from 30 to 50 units, which is a 66.67% increase ((50-30)/30*100), the price must decrease by the same percentage. A decrease of 66.67% from the original price of $20,000 would not result in $12,000, indicating a mistake in the calculation based on the given elasticity. The correct approach involves understanding that with unitary elasticity, the total revenue remains constant. Therefore, the correct calculation should focus on finding the price that maintains the same total revenue with the increased quantity demanded. However, the provided explanation and choices seem to misinterpret the application of unitary elasticity, as none of the choices directly align with a 66.67% decrease. The correct approach would involve calculating the new price that keeps total revenue constant, given the increase in quantity demanded.

Question 20

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when P = 20, the point price elasticity of demand is equal to (approximately):
A)-0.22.
B)-0.29.
C)-0.67.
D)-4.5.

Accepted Answer

The answer of Assuming the inverse demand function for good...

Quiz 3: Demand Elasticities

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when Q is equal to 5, average revenue and marginal revenue are equal to and .

Assume an analyst has been hired to estimate the price elasticity of demand for Levi's brand blue jeans and for blue jeans in general.Ceteris paribus, we would expect the price elasticity of demand in absolute value to be:

Which of the following statements is correct?

If the consumer has a great deal of time to adjust to an increase in the price of gasoline, which of the following is correct?

If the local pizzeria raises the price of a medium pizza from $6 to $10 and quantity demanded falls from 700 pizzas a night to 100 pizzas a night, the arc price elasticity of demand for pizzas is:

Which of the following is not considered to be a determinant of the price elasticity of demand for a particular good?

Demand for a good will tend to be more price elastic if it exhibits which of the following characteristics?

The last time the U.S.Post Office raised its prices for mail service critics of the rate increase argued that the Post Office's revenues would actually decline as a result of the price increase.It can be concluded that:

Many unions attempt to raise the hourly wages received by their members by restricting the supply of workers firms can hire from.Assuming the demand for workers who belong to these unions is inelastic, this would cause:

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, the corresponding total revenue function is:

Which of the following is a plausible reason that restaurants offer "Senior Citizen Discounts"?

According to one study, the price elasticity of demand for restaurant meals is -2.27.This implies that if restaurants want to increase their total revenues they should:

In the long run, the price elasticity of demand is than in the short run because .

In which of the following cases would the price elasticity of demand be expected to increase?

Which of the following statements is correct?

Suppose the price of movies seen at a theater rises from $12 per couple to $20 per couple.The theater manager observes that the rise in price causes attendance at a given movie to fall from 300 persons to 200 persons.What is the arc price elasticity of demand for movies?

As the percentage of the consumer's income accounted for by a particular good decreases, demand for the good will:

Assuming the inverse demand function for good Z can be written as P = 90 - 3Q, when P = 20, the point price elasticity of demand is equal to (approximately) :