Question 1

The demand for voice mail is Q = 1,000 - 150P + 20I. Assume that per capita disposable income I is $900. At a price P of $40, the income elasticity of demand is

Accepted Answer

A) 2. 
B) 4. 
C)  1.0. 
D) 20. 
E)  1.38. 
A) 2. 
B) 4. 
C)  1.0. 
D) 20. 
E)  1.38.

Question 2

If the marginal cost of making a photocopy is 2 cents and the elasticity of demand is 3, the profit-maximizing price is

Accepted Answer

A)  5 cents. 
B)  4 cents. 
C)  3.33 cents. 
D)  3 cents. 
E)  6 cents. 
A)  5 cents. 
B)  4 cents. 
C)  3.33 cents. 
D)  3 cents. 
E)  6 cents.

Question 3

The demand for Craftmatic Adjustable Beds is described by Qc = P-1.60cI-0.80P1.20mA0.25, where Qc is the number of Craftmatic Adjustable Beds demanded, Pc is the price of a Craftmatic Adjustable Bed, I is per capita income, Pm is the price of a battery-powered massage pillow, and A is the advertising budget.
a. If the marginal cost of producing a Craftmatic Adjustable Bed is $200, what is the profit-maximizing price?
b. Per capita income in the United States is forecast to rise by 3% next year. How will this impact Craftmatic's sales?
c. The price of battery-powered massage pillows suddenly fell by 10%. How will this impace Craftmatic's sales?

Accepted Answer

a. $533.33.
b. Deman

Question 4

The demand for drangles is given by D(p) = (p + 1)-2, where p is the price of drangles. If the price of drangles is $19, then the price elasticity of demand for drangles is

Accepted Answer

A)  -3.80 
B)  -7.60 
C)  -5.70 
D)  -3.80. 
E)  -1.90 
A)  -3.80 
B)  -7.60 
C)  -5.70 
D)  -3.80. 
E)  -1.90

Question 5

The demand curve is inelastic for inferior goods and elastic for normal goods.

Accepted Answer

A) True 
 B)False

Question 6

The inverse demand function for coffee is p = 50,000 - 2q, where q is the number of tons produced and p is the price per ton. Total revenue from coffee sales be maximized when the output level is

Accepted Answer

A)  25,000 tons. 
B)  15,000 tons. 
C)  17,500 tons. 
D)  12,500 tons. 
E)  none of the above. 
A)  25,000 tons. 
B)  15,000 tons. 
C)  17,500 tons. 
D)  12,500 tons. 
E)  none of the above.

Question 7

In general, aggregate demand depends only on prices and total income and not on income distribution.

Accepted Answer

A) True 
 B)False

Question 8

If the demand function for tickets to a play is q = 7,500 - 75p, at what price will total revenue be maximized?

Accepted Answer

A)  $100 
B)  $200 
C)  $50 
D)  $25 
E)  none of the above. 
A)  $100 
B)  $200 
C)  $50 
D)  $25 
E)  none of the above.

Question 9

The inverse demand for a good is given by p = 60 - 2q. Suppose that the number of consumers doubles. (For each consumer in the market another consumer with an identical demand function appears.) The demand curve shifts to the right, doubling demand at every price, while the slope of the demand curve stays unchanged.

Accepted Answer

A) True 
 B)False

Question 10

The inverse demand function for soybeans is p = 68,000 - 5q. Total revenue in this market will be maximized when the quantity of soybeans produced is

Accepted Answer

A)  3,400 bushels. 
B)  7,911 bushels. 
C)  6,800 bushels. 
D)  13,600 bushels. 
E)  none of the above. 
A)  3,400 bushels. 
B)  7,911 bushels. 
C)  6,800 bushels. 
D)  13,600 bushels. 
E)  none of the above.

Question 11

If a rational consumer must consume either zero or one unit of a good, then an increase in the price of that good with no change in income or in other prices can never lead to an increase in the consumer's demand for it.

Accepted Answer

A) True 
 B)False

Question 12

If the price elasticity of demand for a normal good is constant, then a price increase of 10A2 will reduce demand by more if the original price is $1 than if the original price is $2.

Accepted Answer

A) True 
 B)False

Question 13

The Laffer effect occurs only if there is a backward-bending labor supply curve.

Accepted Answer

A) True 
 B)False

Question 14

The inverse demand function for grapes is described by the equation p = 518 - 5q, where p is the price in dollars per crate and q is the number of crates of grapes demanded per week. When p = $38 per crate, what is the price elasticity of demand for grapes?

Accepted Answer

A)  -190/60 
B)  -5/518 
C)  -5/95 
D)  -96/38 
E)  -38/480 
A)  -190/60 
B)  -5/518 
C)  -5/95 
D)  -96/38 
E)  -38/480

Question 15

If the demand for the Weekly World News at a local grocery store is described by Q = 2,500 - 400P -   for I = $15,000 and P = $1.50, the marginal revenue of an additional paper sold at this store is

Accepted Answer

A)  $1.50. 
B)  $.38. 
C)  $.50. 
D)  $.15. 
E)  $1. 
A)  $1.50. 
B)  $.38. 
C)  $.50. 
D)  $.15. 
E)  $1.

Question 16

In Tassel, Illinois (pop. 20,000), there are two kinds of families, those who like swimming pools and those who don't. Half of the population is of each type. Families who like swimming pools are willing to spend up to 5% of their income each year on a swimming pool. Families who don't like them would pay nothing for a swimming pool. Nobody wants more than one swimming pool and nobody has thought of sharing a swimming pool. Incomes in Tassel range between $10,000 and $110,000. For incomes M in this range, the number of families in Tassel with income greater than M is about 22,000 - .2M. (The two types of families have the same income distribution.) Find the aggregate demand function for swimming pools in Tassel (demand for swimming pools as a function of the annual cost of having one).

Accepted Answer

The number of people willing t

Question 17

In the reservation price model, either aggregate demand is zero or everyone demands one unit of the good.

Accepted Answer

A) True 
 B)False

Question 18

A firm faces a demand function D(p), for which the revenue-maximizing price is $10. The demand function is altered to 2D(p). What is the new revenue-maximizing price?

Accepted Answer

A)  $5 
B)  $20 
C)  $10 
D)  There is insufficient information to determine this. 
E)  none of the above. 
A)  $5 
B)  $20 
C)  $10 
D)  There is insufficient information to determine this. 
E)  none of the above.

Question 19

At a large institution of higher learning, the demand for football tickets at each game is 100,000 - 6,000p. If the capacity of the stadium at that university is 60,000 seats, what is the revenue maximizing price for this university to charge per ticket?

Accepted Answer

A)  $16.67 
B)  $8.33 
C)  $6.67 
D)  $4.17 
E)  $25 
A)  $16.67 
B)  $8.33 
C)  $6.67 
D)  $4.17 
E)  $25

Question 20

The demand for cable television hookups is Q = 100 - 10P0.5 + 2I2, where P is price and I is per capita income. Cable TV is

Accepted Answer

A)  a normal good. 
B)  a natural monopoly. 
C)  an inferior good. 
D)  a substitute good. 
E)  a complement good. 
A)  a normal good. 
B)  a natural monopoly. 
C)  an inferior good. 
D)  a substitute good. 
E)  a complement good.

Exam 14: Market Demand

The demand for voice mail is Q = 1,000 - 150P + 20I. Assume that per capita disposable income I is $900. At a price P of $40, the income elasticity of demand is

If the marginal cost of making a photocopy is 2 cents and the elasticity of demand is 3, the profit-maximizing price is

The demand for drangles is given by D(p) = (p + 1)-2, where p is the price of drangles. If the price of drangles is $19, then the price elasticity of demand for drangles is

The demand curve is inelastic for inferior goods and elastic for normal goods.

The inverse demand function for coffee is p = 50,000 - 2q, where q is the number of tons produced and p is the price per ton. Total revenue from coffee sales be maximized when the output level is

In general, aggregate demand depends only on prices and total income and not on income distribution.

If the demand function for tickets to a play is q = 7,500 - 75p, at what price will total revenue be maximized?

The inverse demand function for soybeans is p = 68,000 - 5q. Total revenue in this market will be maximized when the quantity of soybeans produced is

If a rational consumer must consume either zero or one unit of a good, then an increase in the price of that good with no change in income or in other prices can never lead to an increase in the consumer's demand for it.

If the price elasticity of demand for a normal good is constant, then a price increase of 10A2 will reduce demand by more if the original price is $1 than if the original price is $2.

The Laffer effect occurs only if there is a backward-bending labor supply curve.

The inverse demand function for grapes is described by the equation p = 518 - 5q, where p is the price in dollars per crate and q is the number of crates of grapes demanded per week. When p = $38 per crate, what is the price elasticity of demand for grapes?

If the demand for the Weekly World News at a local grocery store is described by Q = 2,500 - 400P - for I = $15,000 and P = $1.50, the marginal revenue of an additional paper sold at this store is

In the reservation price model, either aggregate demand is zero or everyone demands one unit of the good.

A firm faces a demand function D(p), for which the revenue-maximizing price is $10. The demand function is altered to 2D(p). What is the new revenue-maximizing price?

At a large institution of higher learning, the demand for football tickets at each game is 100,000 - 6,000p. If the capacity of the stadium at that university is 60,000 seats, what is the revenue maximizing price for this university to charge per ticket?

The demand for cable television hookups is Q = 100 - 10P0.5 + 2I2, where P is price and I is per capita income. Cable TV is

Budget Constraint

A: Budget Constraint

Preferences

A: Preferences

Utility

A: Utility

Choice

A: Choice

Demand

A: Demand

Revealed Preference

A: Revealed Preference

Slutsky Equation

A: Slutsky Equation

Buying and Selling

A: Buying and Selling

Intertemporal Choice

A: Intertemporal Choice

Asset Markets

A: Asset Markets

Uncertainty

A: Uncertainty

Risky Assets

A: Risky Assets

Consumers Surplus

A: Consumers Surplus

A: Market Demand

Equilibrium

A: Equilibrium

Auctions

A: Auctions

Technology

A: Technology

Profit Maximization

A: Profit Maximization

Cost Minimization

A: Cost Minimization

Cost Curves

A: Cost Curves

Firm Supply

A: Firm Supply

Industry Supply

A: Industry Supply

Monopoly

A: Monopoly

Monopoly Behavior

A: Monopoly Behavior

Factor Markets

A: Factor Markets

Oligopoly

A: Oligopoly

Game Theory

A: Game Theory

Game Applications

A: Game Applications

Behavioral Economics

Exchange

A: Exchange

Production

A: Production

Welfare

A: Welfare

The demand for drangles is given by D(p) = (p + 1)^-², where p is the price of drangles. If the price of drangles is $19, then the price elasticity of demand for drangles is

The demand for cable television hookups is Q = 100 - 10P^0.5 + 2I², where P is price and I is per capita income. Cable TV is