Question 1

The cross price elasticity of demand between goods X and Y is -3.5.If the price of X decreases by 7%, the quantity demanded of Y will:
A)decrease by 24.5%.
B)decrease by 2.45%.
C)increase by 24.5%.
D)increase by 2.45%.

Accepted Answer

The cross price elasticity of demand between goods X and Y being -3.5 indicates that they are complementary goods, which means that an increase in the price of X will result in a decrease in the demand for Y.

Therefore, a decrease in the price of X by 7% will result in an increase in the demand for Y. The magnitude of this increase can be calculated using the following formula:

% Change in Quantity Demanded of Y = (Cross Price Elasticity of Demand) x (% Change in Price of X)

% Change in Quantity Demanded of Y = (-3.5) x (-7%)

% Change in Quantity Demanded of Y = 24.5%

Thus, the quantity demanded of Y will increase by 24.5%. Therefore, the best choice is C.

Question 2

When the price of sugar was "low", consumers in the U.S.spent a total of $3 billion annually on sugar consumption.When the price doubled, consumer expenditures remained at $3 billion annually.This data indicates that:
A)The demand for sugar is inelastic.
B)The demand curve for sugar is upward sloping.
C)The quantity demanded of sugar increased.
D)None of the statements associated with this question are correct.

Accepted Answer

The answer of When the price of sugar was "low",...

Question 3

The demand for good X is given by lnQ_x^d = 120 - 0.9 lnP_x + 1.5 lnP_y - 0.7 lnM.Which of the following statements is correct? A)X has constant income elasticity. B)An economic downturn will increase demand for X. C)A 15% increase in income would increase demand for X by 10.5%. D)X has a constant income elasticity and an economic downturn will increase the demand for X.

Accepted Answer

The demand function is in log-linear form, indicating constant elasticities. The coefficient of lnM (-0.7) represents the income elasticity, which is constant.

Question 4

The demand for which of the following commodities is likely to be more price inelastic?
A)food.
B)hamburgers.
C)Big Mac's.
D)sandwiches.

Accepted Answer

Food is a necessity and has fewer substitutes compared to specific items like hamburgers, Big Macs, or sandwiches, making its demand more price inelastic.

Question 5

When the price of sugar was "low", consumers in the U.S.spent a total of $3 billion annually on sugar consumption.When the price doubled, consumer expenditures increased to $5 billion annually.This data indicates that:
A)The demand for sugar is inelastic.
B)The demand curve for sugar is upward sloping.
C)The quantity demanded of sugar increased.
D)the demand curve for sugar is upward sloping and the quantity demanded of sugar increased.

Accepted Answer

The increase in price led to a relatively small increase in consumer spending, indicating that the demand for sugar is inelastic. If the demand were elastic, a price increase would have led to a larger decrease in quantity demanded, resulting in a decrease in total consumer spending.

Question 6

The management of Local Cinema has estimated the monthly demand for tickets to be lnQ = 22,328 - 0.41 lnP + 0.5 lnM - 0.33 lnA + 100 lnP_vcr, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and P_vcr = price of a VCR tape rental.It is known that P = $5.50, M = $9,000, A = $900, and P_vcr = $3.00.Based on the information given, which of the following statements is false? A)Advertising decreases the demand for movie tickets. B)Movies are normal goods. C)Movies are complements for VCR tapes. D)The advertising elasticity of demand for movie tickets is -0.33.

Accepted Answer

The positive coefficient of lnP_vcr indicates that movies and VCR tapes are substitutes, not complements.

Question 7

The elasticity of demand for gasoline has been estimated to be 2.0, and the standard error is 1.0.The upper and lower bounds on the 95 percent confidence interval for the elasticity of demand for gasoline are
A)3 and 2.
B)2 and 1.
C)3 and 1.
D)none of the statements associated with this question are correct.

Accepted Answer

The answer of The elasticity of demand for gasoline has...

Question 8

Each week Bill buys exactly 7 bottles of cola regardless of its price.Bill's own price elasticity of demand for cola in absolute value is:
A)greater than one.
B)less than one.
C)one.
D)zero.

Accepted Answer

Bill's own price elasticity of demand for cola is zero as he buys the same quantity of 7 bottles every week regardless of the price. Hence, his demand is not sensitive to changes in price, making his elasticity zero.

Question 9

The cross-price elasticity of demand for textbooks and copies of old exams is -3.5.If the price of copies of old exams increase by 10 percent, the quantity demanded of textbooks will
A)fall by 3.5 percent.
B)rise by 3.5 percent.
C)fall by 35 percent.
D)rise by 35 percent.

Accepted Answer

The answer of The cross-price elasticity of demand for textbooks...

Question 10

The cross-price advertising of demand for books and magazines is -2.0.If the price of magazines decreases by 10 percent, the quantity demanded of books will
A)fall by 2.0 percent.
B)rise by 2.0 percent.
C)fall by 20 percent.
D)rise by 20 percent.

Accepted Answer

The cross-price elasticity of demand is -2.0, indicating that books and magazines are complements. A 10% decrease in the price of magazines will lead to a 20% increase in the quantity demanded of books (10% * -2.0 = -20%).

Question 11

The short run response of quantity demanded to a change in price is usually:
A)The same as the long run response.
B)Less than the long run response.
C)Greater than the long run response.
D)None of the statements associated with this question are correct.

Accepted Answer

In the short run, consumers may not be able to adjust their consumption habits or find substitutes for the good whose price has changed, resulting in a lower elasticity of demand and a smaller change in quantity demanded compared to the long run. However, in the long run, consumers may find ways to adjust their behavior more holistically, resulting in a greater change in quantity demanded.

Question 12

The demand for video recorders has been estimated to linear and given by the demand relation Q_v = 145 - 3.2P_v + 7M - 0.95P_f - 39P_m, 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 M is income.Based on the estimated demand equation we can conclude: A)video recorders are normal goods. B)the demand for video recorders is inelastic. C)video recorders are normal goods and the demand for video recorders is inelastic. D)video recorders are normal goods and video recorder film is a complement for video recorders.

Accepted Answer

The answer of The demand for video recorders has been...

Question 13

If the demand function for a particular good is Q = 25 - 10P, then the price elasticity of demand (in absolute value) at a price of $1 is
A)8.
B)2.
C)2/3.
D)1/8.

Accepted Answer

The answer of If the demand function for a particular...

Question 14

When the own price elasticity of good X is -3.5 then total revenue can be increased by
A)increasing the price.
B)decreasing the quantity supplied.
C)decreasing the price.
D)neither increase price, decrease price nor decrease quantity supplied.

Accepted Answer

When the own price elasticity of a good is greater than 1 in absolute value (as with a value of -3.5), demand is considered to be elastic. This means that as price decreases, quantity demanded increases by a greater proportion. Therefore, decreasing the price will lead to an increase in total revenue. Conversely, increasing the price will lead to a decrease in total revenue. Decreasing the quantity supplied is not a factor that affects total revenue in this scenario.

Question 15

If the demand function for a particular good is Q = 20 - 8P, then the price elasticity of demand (in absolute value) at a price of $1 is
A)8.
B)2.
C)2/3.
D)1/8.

Accepted Answer

Price elasticity of demand can be calculated using the formula: 
E = (ΔQ/ΔP) * (P/Q)

At a price of $1, the demand for the good is:
Q = 20 - 8P
Q = 20 - 8(1)
Q = 12

If the price increases from $1 to $1 + ΔP, the new quantity demanded will be:
Q' = 20 - 8(P + ΔP)
Q' = 20 - 8P - 8ΔP

The change in quantity demanded is:

ΔQ = Q' - Q
ΔQ = (20 - 8P - 8ΔP) - (20 - 8P)
ΔQ = -8ΔP

The change in price is:

ΔP = (1 + ΔP) - 1
ΔP = ΔP

Now, we can substitute these values into the formula for price elasticity of demand:

E = (ΔQ/ΔP) * (P/Q)
E = (-8ΔP / ΔP) * (1 / 12)
E = -8/12
E = -2/3

Since we want the absolute value, the answer is 2/3, which is choice C.

Question 16

The management of Local Cinema has estimated the monthly demand for tickets to be lnQ = 22,328 - 0.41 lnP + 0.5 lnM - 0.33 lnA + 100 lnP_vcr, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and P_vcr = price of a VCR tape rental.It is known that P = $5.50, M = $9,000, A = $900, and P_vcr = $3.00.Determine the own-price elasticity of demand for movie tickets. A)-0.29. B)-0.32. C)-0.39. D)-0.41.

Accepted Answer

The own-price elasticity of demand is given by the coefficient of lnP in the demand equation, which is -0.41.

Question 17

The demand for which of the following commodities is likely to be more inelastic?
A)Soft drinks.
B)Beverages.
C)Cola drinks.
D)Pepsi Cola.

Accepted Answer

The answer of The demand for which of the following...

Question 18

When the price of sugar was "low", consumers in the United States spent a total of $3 billion annually on its consumption.When the price doubled, consumer expenditures actually increased to $4 billion annually.This indicates that
A)the demand for sugar is elastic.
B)the demand curve for sugar is upward sloping.
C)sugar is a Giffen good.
D)none of the statements associated with this question are correct.

Accepted Answer

The answer of When the price of sugar was "low",...

Question 19

The price elasticity of demand is -2.0 for a certain firm's product.If the firm raises price, the firm manager 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.

Accepted Answer

The price elasticity of demand is -2.0 which means that a 1% increase in price will result in a 2% decrease in quantity demanded. Therefore, if the firm raises the price, the decrease in quantity demanded will be greater than the increase in price, resulting in a decrease in total revenue.

Question 20

Which of the following statements is incorrect?
A)If a firm decreases the price of its product, its total revenue will decrease.
B)The own price elasticity of demand is constant at all points along a linear demand curve.
C)As the price of X falls and we move down an individual's demand curve for X, the money income of the individual also changes.
D)None of the statements associated with this question are correct.

Accepted Answer

The answer of Which of the following statements is incorrect?
A)If...

Quiz 3: Quantitative Demand Analysis

The cross price elasticity of demand between goods X and Y is -3.5.If the price of X decreases by 7%, the quantity demanded of Y will:

When the price of sugar was "low", consumers in the U.S.spent a total of $3 billion annually on sugar consumption.When the price doubled, consumer expenditures remained at $3 billion annually.This data indicates that:

The demand for good X is given by lnQxd = 120 - 0.9 lnPx + 1.5 lnPy - 0.7 lnM.Which of the following statements is correct?

The demand for which of the following commodities is likely to be more price inelastic?

When the price of sugar was "low", consumers in the U.S.spent a total of $3 billion annually on sugar consumption.When the price doubled, consumer expenditures increased to $5 billion annually.This data indicates that:

The elasticity of demand for gasoline has been estimated to be 2.0, and the standard error is 1.0.The upper and lower bounds on the 95 percent confidence interval for the elasticity of demand for gasoline are

Each week Bill buys exactly 7 bottles of cola regardless of its price.Bill's own price elasticity of demand for cola in absolute value is:

The cross-price elasticity of demand for textbooks and copies of old exams is -3.5.If the price of copies of old exams increase by 10 percent, the quantity demanded of textbooks will

The cross-price advertising of demand for books and magazines is -2.0.If the price of magazines decreases by 10 percent, the quantity demanded of books will

The short run response of quantity demanded to a change in price is usually:

If the demand function for a particular good is Q = 25 - 10P, then the price elasticity of demand (in absolute value) at a price of $1 is

When the own price elasticity of good X is -3.5 then total revenue can be increased by

If the demand function for a particular good is Q = 20 - 8P, then the price elasticity of demand (in absolute value) at a price of $1 is

The demand for which of the following commodities is likely to be more inelastic?

When the price of sugar was "low", consumers in the United States spent a total of $3 billion annually on its consumption.When the price doubled, consumer expenditures actually increased to $4 billion annually.This indicates that

The price elasticity of demand is -2.0 for a certain firm's product.If the firm raises price, the firm manager can expect total revenue to

Which of the following statements is incorrect?

The demand for good X is given by lnQ_x^d = 120 - 0.9 lnP_x + 1.5 lnP_y - 0.7 lnM.Which of the following statements is correct?