Question 1

Assume the demand for electricity,a necessity with few substitutes,is -0.2.If the electric company raised its rates by 10 percent,we would expect:

Accepted Answer

The demand elasticity of -0.2 indicates that a 10% increase in prices will lead to a 2% decrease in quantity demanded (-0.2 x 10 = -2). Therefore, the best choice is D) a 2% decrease in quantity demanded.

Question 2

For which of the following is demand likely to be most sensitive to price increases?

Accepted Answer

A specific brand of soft drink is likely to have the most price-sensitive demand because there are many substitutes available in the market, making consumers more likely to switch to a different brand if the price increases. Additionally, soft drinks are not a necessity, so consumers are more likely to be price-sensitive when making their purchasing decisions.

Question 3

Price elasticity of demand is the:

Accepted Answer

Price elasticity of demand is measured by the percentage change in quantity demanded resulting from a percentage change in price. This ratio is calculated by dividing the percentage change in quantity demanded by the percentage change in price.

Question 4

For which of the following is demand likely to be least sensitive to price increases?

Accepted Answer

Prescription drugs are often considered a necessity and may not have close substitutes, making demand less sensitive to price increases compared to the other options.

Question 5

If a 1 percent decrease in price results in more than a 1 percent increase in quantity demand,demand is:

Accepted Answer

This scenario indicates that the percentage change in quantity demanded is greater than the percentage change in price, which means demand is price elastic.

Question 6

Near the end of the summer season,Sergio still has a large inventory of bathing suits.He needs to sell them rather than holding them over till next season,because colors and styles often change.He plans to offer them at 30 percent off the retail price.Sergio hopes that demand for bathing suits at the end of the season is:

Accepted Answer

When Sergio offers a discount of 30 percent, customers may be more motivated to buy the bathing suits because they are getting a better deal. This means that the change in quantity demanded will be more than the change in price, resulting in a relatively large elasticity of demand. Therefore, the demand for bathing suits at the end of the season is likely to be price elastic.

Question 7

__________ measures consumers' sensitivity to price changes.

Accepted Answer

Price elasticity of demand measures the percentage change in quantity demanded in response to a percentage change in price. It helps businesses determine the optimal price point for their products and understand how changes in price will affect consumer behavior. A higher price elasticity of demand means that consumers are more sensitive to price changes and will likely decrease their demand for the product if the price increases, while a lower price elasticity of demand means that consumers will likely continue to buy the product even if the price increases.

Question 8

Marketer of products and services associated with the wedding industry know that customers often do not care what the price is.They just want the wedding to be perfect.For these customers demand,is likely to be:

Accepted Answer

Customers who prioritize the perfect wedding over the price are likely to exhibit price inelastic demand. This means that changes in price are unlikely to significantly affect their demand for wedding-related products and services.

Question 9

Rodi owns Hallman's auto repair service.He has observed over the years that customers keep their high-mileage cars longer when the economy is doing poorly,creating demand for his maintenance and repair service.Rodi has observed the impact of __________ on demand for his service.

Accepted Answer

The income effect refers to the impact of changes in income on consumer spending patterns. In this case, when the economy is doing poorly, customers may have less disposable income and therefore may choose to keep their high-mileage cars longer, leading to increased demand for maintenance and repair services.

Question 10

There is an old saying,"If you have to ask the price of a yacht,you cannot afford it." Products like yachts are most likely to be associated with:

Accepted Answer

Yachts are luxury products that are typically priced higher than their competitors to signal high quality and exclusivity. This pricing strategy is known as prestige pricing.

Question 11

According to a typical demand curve,the higher the price:

Accepted Answer

According to the law of demand, as the price of a good or service increases, the quantity demanded decreases. Therefore, the higher the price, the lower the quantity consumers will buy. This is reflected in a downward-sloping demand curve.

Question 12

Customers purchase prestige products or services for the status of owning the products,not just for the functionality.These products may not follow a typical demand curve if:

Accepted Answer

With prestige products, increasing the price may be perceived as increasing the exclusivity and desirability of owning one, making more people want to own one. This means that the demand curve for prestige products may not follow the traditional downward slope, as is seen with most products.

Question 13

Sales of national brands of orange juice tend to increase when the economy is doing well,while sales of generic orange juice increase when the economy is not doing well.Among industry members this is called the "orange juice indicator." This is an example of how ___________ impacts demand for products.

Accepted Answer

The "orange juice indicator" suggests that sales of national brands of orange juice increase during periods of economic growth, which is associated with an increase in consumers' income. This demonstrates the impact of income on demand for products, specifically in this case, for orange juice.

Question 14

The food and beverage manager at an upscale country club once offered a two-for-one happy hour price for all alcoholic beverages,only to see a very little response to the special.For these consumers,demand for alcoholic beverages is:

Accepted Answer

The fact that there was very little response to the two-for-one happy hour price suggests that demand for alcoholic beverages is not very sensitive to changes in price, making it price inelastic.

Question 15

A study found that,among addicted smokers,a 10 percent increase in the price of cigarettes resulted in a 2 percent decrease in quantity demanded.For these consumers,cigarettes have a(n)__________ price elasticity demand.

Accepted Answer

A price elasticity of demand coefficient of less than 1 indicates that the good has an inelastic demand. In this case, the 10 percent increase in price resulted in a smaller, 2 percent decrease in quantity demanded, indicating that addicted smokers have an inelastic demand for cigarettes.

Question 16

Barry customizes Harley-Davidson motorcycles.No two cycles are alike.He notices that very few customers even ask the price of his customized motorcycles before they decide to purchase them.Demand for his motorcycles is probably:

Accepted Answer

The fact that customers are not asking about the price of the customized motorcycles before purchasing indicates that demand for the motorcycles is likely price inelastic. This means that changes in price will not have a significant impact on the quantity of motorcycles demanded.

Question 17

The observation that consumers are generally more sensitive to price increases than to price decreases suggests that:

Accepted Answer

The observation that consumers are more sensitive to price increases suggests that they are more likely to switch to an alternative product or simply forego the purchase altogether if the price increases. This means that it is easier to lose customers with a price increase than to gain customers with a price decrease.

Question 18

A change in __________ would probably cause a change in the demand curve for a product.

Accepted Answer

All of these factors can affect the demand curve for a product. Advertising expenditures can increase consumer awareness and desire for a product, leading to an increase in demand. Economic factors such as changes in income or consumer confidence can also affect demand. Competitors' prices can impact demand, as consumers may switch to a lower-priced substitute. Finally, the price of related goods (such as a complementary good like coffee and cream) can affect demand for a product.

Question 19

Ferrari and Lamborghini are manufacturers of very expensive automobiles.Their limited edition cars often sell for $300,000 or more.For most consumers,these are prestige products,and demand is likely to be:

Accepted Answer

As mentioned in the passage, these cars are considered prestige products, which means that consumers who are willing to purchase them are likely to be less sensitive to price changes. Therefore, demand for these limited edition cars is likely to be price inelastic.

Question 20

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded,demand is:

Accepted Answer

If a 1 percent decrease in price results in less than a 1 percent increase in the quantity demanded, demand is considered price inelastic. This means that changes in price have a relatively small effect on the quantity demanded.

Quiz 13: Pricing Concepts for Establishing Value