Question 1

The constant elasticity of demand for cigarettes has been estimated to be 0.5.To reduce smoking by 75%, approximately how much tax needs to be added to a $1 pack?

Accepted Answer

A) $.38. 
B) $.75. 
C) $1.50. 
D) $2.25. 
E) $4. 
A) $.38. 
B) $.75. 
C) $1.50. 
D) $2.25. 
E) $4. C

Question 2

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 to pay at least p is half of the number who have income at least $20p.Therefore the aggregate demand function is 11,000 - 2p.

Question 3

In a certain city, the demand function for crack cocaine is q = 1,000 - p, where p is the street price.The cocaine industry is competitive.Cocaine distributors can buy as much cocaine as they wish at a price of $50 per unit from Colombian sources.Whenever the city narcotics police catch a cocaine dealer, they confiscate all the cocaine that he has.The jails are full so they do not imprison the dealers.The police are able to catch the dealers about half the time, so they get about half the cocaine that enters the city.Instead of destroying confiscated crack, the police simply resell it on the street.If the original supply curve of cocaine on the streets was horizontal, what is the net effect of police activities on the market for crack in this city?

Accepted Answer

A) The amount purchased on the street is about 50 units smaller than it would be with no enforcement. 
B) There is no effect, since all of the drugs reach consumers anyway. 
C) Crack dealers will stop dealing in this city altogether, since they can make more money elsewhere. 
D) The amount of crack purchased on the street decreases by about half. 
E) The quantity purchased by dealers rises to make up for the amount that is confiscated. 
A) The amount purchased on the street is about 50 units smaller than it would be with no enforcement. 
B) There is no effect, since all of the drugs reach consumers anyway. 
C) Crack dealers will stop dealing in this city altogether, since they can make more money elsewhere. 
D) The amount of crack purchased on the street decreases by about half. 
E) The quantity purchased by dealers rises to make up for the amount that is confiscated. A

Question 4

The demand function for potatoes has the quantity q = 1,000 - 10p.As the price of potatoes changes from 10A2 to 20A2, the absolute value of the price elasticity of demand for potatoes increases.

Accepted Answer

A) True 
 B)False

Question 5

Given his current income, Rico's demand for bagels is related to the price of bagels by the equation Q = 540 - 16P.Rico's income elasticity of demand for bagels is known to be equal to 0.5 at all prices and incomes.If Rico's income quadruples, his demand for bagels will be related to the price of bagels by the equation

Accepted Answer

A) Q = 540 - 16P. 
B) Q = 2,160 - 64P. 
C) Q = 540 - 32P. 
D) Q = 1,080 - 32P 
E) Q = 1,080- 16P. 
A) Q = 540 - 16P. 
B) Q = 2,160 - 64P. 
C) Q = 540 - 32P. 
D) Q = 1,080 - 32P 
E) Q = 1,080- 16P.

Question 6

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

Question 7

At the price of $100, tourists demand 267 airplane tickets.At the same price, business travelers demand 237.At the price $110, tourists demand 127 tickets and business travelers demand 127.Assuming that the demand curves of business travelers and tourists are both linear over this price range, what is the price elasticity of demand at the price $100?

Accepted Answer

A) -4.96 
B) -25 
C) -5.46 
D) -0.05 
E) none of the above. 
A) -4.96 
B) -25 
C) -5.46 
D) -0.05 
E) none of the above.

Question 8

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 $20, then the price elasticity of demand for drangles is

Accepted Answer

A) -7.62. 
B) -3.81 
C) -5.71. 
D) -3.81. 
E) -1.90. 
A) -7.62. 
B) -3.81 
C) -5.71. 
D) -3.81. 
E) -1.90.

Question 9

In Gas Pump, South Dakota, every Buick owner's demand for gasoline is 20 - 5p for p less than or equal to 4 and 0 for p > 4.Every Dodge owner's demand is 15 - 3p for p less than or equal to 5 and 0 for p > 5.Suppose that Gas Pump has 100 Buick owners and 50 Dodge owners.If the price of gasoline is $4.25, what is the total amount of gasoline demanded in Gas Pump?

Accepted Answer

A) 112.50 gallons 
B) 225 gallons 
C) 168.75 gallons 
D) 56.25 gallons 
E) none of the above. 
A) 112.50 gallons 
B) 225 gallons 
C) 168.75 gallons 
D) 56.25 gallons 
E) none of the above.

Question 10

Ed has 100 tons of manure.The lowest price at which he is willing to sell it is $10 per ton.Fred wants to buy 100 tons of manure.The most he is willing to pay is $8 per ton.The federal government offers to subsidize manure sales at a rate of $1 per ton.If Ed and Fred are the only people who deal in manure, then the deadweight loss caused by the subsidy is

Accepted Answer

A) $100. 
B) $50. 
C) $0. 
D) $200. 
E) none of the above. 
A) $100. 
B) $50. 
C) $0. 
D) $200. 
E) none of the above.

Question 11

If the marginal cost of making a photocopy is 2 cents and the elasticity of demand is 2.50, the profit-maximizing price is

Accepted Answer

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

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

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.Demand

Question 14

If consumer 1 has the demand function x1 = 1,000 - 2p and consumer 2 has the demand function x2 =500 - p, then the aggregate demand function for an economy with just these two consumers would be x =1,500 - 3p for p < 500.

Accepted Answer

A) True 
 B)False

Question 15

Jen, Eric, and Kurt are all buyers of chain saws.Jen's demand function is Qj = 520 - 13P, Eric's demand function is Qe = 40 - P, and Kurt's demand function is Qk = 200 - 5P.Together, these three constitute the entire demand for chainsaws.At what price will the price elasticity of market demand be 21?

Accepted Answer

A) $19 
B) $20 
C) $25 
D) $15 
E) none of the above. 
A) $19 
B) $20 
C) $25 
D) $15 
E) none of the above.

Question 16

A peck is 1/4 of a bushel.If the price elasticity of demand for peas is -0.10 when peas are measured in bushels, then when peas are measured in pecks, the price elasticity of demand for peas will be

Accepted Answer

A) -0.10. 
B) -0.40. 
C) -0.03. 
D) -0.20. 
E) none of the above. 
A) -0.10. 
B) -0.40. 
C) -0.03. 
D) -0.20. 
E) none of the above.

Question 17

Rod cares about the number of cars he has and the amount of money he has to spend on other stuff.The only possibilities of interest for Rod are having 0, 1, or 2 cars.Where x is the number of cars he has and y is the money he has per year for other stuff, Rod's utility is U(0, y)= y.5, U(1, y)= (15/14)y.5, and U(2, y)= (10/9)y.5.Rod's income is $25,000 a year.It would cost Rod $2,500 a year to have 1 car and $3,500 a year to have 2 cars.How many cars will he choose?

Accepted Answer

A) 0 
B) 1 
C) 2 
D) He is indifferent between buying 1 and buying 2 cars. 
E) He is indifferent between buying 2 and buying 3 cars. 
A) 0 
B) 1 
C) 2 
D) He is indifferent between buying 1 and buying 2 cars. 
E) He is indifferent between buying 2 and buying 3 cars.

Question 18

Harry's demand function for blueberries is x = 20 - p, where p is the price and x is the quantity demanded.If the price of blueberries is 3, then what is Harry's price elasticity of demand for blueberries?

Accepted Answer

A) -6/14 
B) -2/20 
C) -2 
D) -14/6 
E) none of the above. 
A) -6/14 
B) -2/20 
C) -2 
D) -14/6 
E) none of the above.

Question 19

An economy has 100 consumers of type 1 and 200 consumers of type 2.If the price of the good is less than $10, then each type 1 consumer demands 10 - p units of the good; otherwise each type 1 demands zero.If the price of the good is less than 8, then each type 2 demands 24 - 3p; otherwise each type 2 demands zero.If the price of the good is 6, then the total amount of the good demanded will be

Accepted Answer

A) 1,600 units. 
B) 1,800 units. 
C) 2,000 units. 
D) 420 units. 
E) 1,200 units. 
A) 1,600 units. 
B) 1,800 units. 
C) 2,000 units. 
D) 420 units. 
E) 1,200 units.

Question 20

The demand function is described by the equation q(p)= 130 - p/5.The inverse demand function is described by the equation

Accepted Answer

A) p(q)= 650 - 5q. 
B) p(q)= 1/130- q/5. 
C) q(p)= 130 - 5p. 
D) q(p)= 1/(130 - p/5). 
E) p(q)= 130 - q/5. 
A) p(q)= 650 - 5q. 
B) p(q)= 1/130- q/5. 
C) q(p)= 130 - 5p. 
D) q(p)= 1/(130 - p/5). 
E) p(q)= 130 - q/5.

Exam 14: Market Demand-Part A

The constant elasticity of demand for cigarettes has been estimated to be 0.5.To reduce smoking by 75%, approximately how much tax needs to be added to a $1 pack?

The demand function for potatoes has the quantity q = 1,000 - 10p.As the price of potatoes changes from 10A2 to 20A2, the absolute value of the price elasticity of demand for potatoes increases.

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?

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 $20, then the price elasticity of demand for drangles is

If the marginal cost of making a photocopy is 2 cents and the elasticity of demand is 2.50, the profit-maximizing price is

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

If consumer 1 has the demand function x1 = 1,000 - 2p and consumer 2 has the demand function x2 =500 - p, then the aggregate demand function for an economy with just these two consumers would be x =1,500 - 3p for p < 500.

A peck is 1/4 of a bushel.If the price elasticity of demand for peas is -0.10 when peas are measured in bushels, then when peas are measured in pecks, the price elasticity of demand for peas will be

Harry's demand function for blueberries is x = 20 - p, where p is the price and x is the quantity demanded.If the price of blueberries is 3, then what is Harry's price elasticity of demand for blueberries?

The demand function is described by the equation q(p)= 130 - p/5.The inverse demand function is described by the equation

Budget Constraint-Part A

Budget Constraint-Part B

Preferences-Part A

Preferences-Part B

Utility-Part A

Utility-Part B

Choice-Part A

Choice-Part B

Demand-Part A

Demand-Part B

Revealed Preference-Part A

Revealed Preference-Part B

Slutsky Equation-Part A

Slutsky Equation-Part B

Buying and Selling-Part A

Buying and Selling-Part B

Intertemporal Choice-Part A

Intertemporal Choice-Part B

Asset Markets-Part A

Asset Markets-Part B

Uncertainty-Part A

Uncertainty-Part B

Risky Assets-Part A

Risky Assets-Part B

Consumers Surplus-Part A

Consumers Surplus-Part B

Market Demand-Part B

Equilibrium-Part A

Equilibrium-Part B

Auctions-Part A

Auctions-Part B

Technology-Part A

Technology-Part B

Profit Maximization-Part A

Profit Maximization-Part B

Cost Minimization-Part A

Cost Minimization-Part B

Cost Curves-Part A

Cost Curves-Part B

Firm Supply-Part A

Firm Supply-Part B

Industry Supply-Part A

Industry Supply-Part B

Monopoly-Part A

Monopoly-Part B

Monopoly Behavior-Part A

Monopoly Behavior-Part B

Factor Markets-Part A

Factor Markets-Part B

Oligopoly-Part A

Oligopoly-Part B

Game Theory-Part A

Game Theory-Part B

Game Applications-Part A

Game Applications-Part B

Behavioral Economics

Exchange-Part A

Exchange-Part B

Production-Part A

Production-Part B

Welfare-Part A

Welfare-Part B

Externalities-Part A

Externalities-Part B

Information Technology-Part A

Information Technology-Part B

Public Goods-Part A

Public Goods-Part B

Asymmetric Information-Part A

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 $20, then the price elasticity of demand for drangles is

If consumer 1 has the demand function x₁ = 1,000 - 2p and consumer 2 has the demand function x₂ =500 - p, then the aggregate demand function for an economy with just these two consumers would be x =1,500 - 3p for p < 500.