Question 1

The constant elasticity of demand for cigarettes has been estimated to be 0.5.To reduce smoking by 25%, approximately how much tax needs to be added to a $1 pack?

Accepted Answer

A) $.50. 
B) $.75. 
C) $.25. 
D) $.13. 
E) $4. 
A) $.50. 
B) $.75. 
C) $.25. 
D) $.13. 
E) $4.

Question 2

The inverse demand function for grapes is described by the equation p = 676 - 9q, where p is the price in dollars per crate and q is the number of crates of grapes demanded per week.When p = $28 per crate, what is the price elasticity of demand for grapes?

Accepted Answer

A) -9/676 
B) -9/72 
C) -72/28 
D) -252/72 
E) -28/648 
A) -9/676 
B) -9/72 
C) -72/28 
D) -252/72 
E) -28/648

Question 3

The demand for voice mail is Q = 1,000 - 150P + 25I.Assume that per capita disposable income I is $900.At a price P of $50, the income elasticity of demand is

Accepted Answer

A) 1.0. 
B) 5. 
C) 2.50. 
D) 25. 
E) 1.41. 
A) 1.0. 
B) 5. 
C) 2.50. 
D) 25. 
E) 1.41.

Question 4

If the elasticity of demand curve for buckwheat is -1.25 at all prices higher than the current price, we would expect that when bad weather reduces the size of the buckwheat crop, total revenue of buckwheat producers will fall.

Accepted Answer

A) True 
 B)False

Question 5

If the demand function is q = m - 2(ln p)over some range of values of p, then at all such values of p, the absolute value of the price elasticity of demand

Accepted Answer

A) increases as p increases. 
B) decreases as p increases. 
C) is constant as p changes. 
D) increases with p at small values and decreases with p at large values. 
E) decreases with p at large values and increases with p at small values. 
A) increases as p increases. 
B) decreases as p increases. 
C) is constant as p changes. 
D) increases with p at small values and decreases with p at large values. 
E) decreases with p at large values and increases with p at small values.

Question 6

The demand function for small business computers in the United States is given by x = 200 - 10p, where x is annual sales measured in thousands of computers and p is the price of a computer measured in thousands of dollars.Japanese firms supply a big share of these computers.They measure prices in yen where 150 yen equal 1 dollar.The price of 1 computer is $10,000.Let Eu be the price elasticity of demand at this price as calculated by US firms who measure in dollars, and let Ej be the price elasticity of demand at the same $10,000 price but measured in yen by the Japanese firms.Which of the following are the values of Eu and Ej, respectively?

Accepted Answer

A) -1, 2150 
B) -1, 21 
C) -2, 22 
D) -2, 2300 
E) -2, 20.0133 
A) -1, 2150 
B) -1, 21 
C) -2, 22 
D) -2, 2300 
E) -2, 20.0133

Question 7

If the demand curve for a good is given by the equation q = 2/p, where q is quantity and p is price, then at any positive price, the elasticity of demand will be -1.

Accepted Answer

A) True 
 B)False

Question 8

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 9

Given his current income, Rico's demand for bagels is related to the price of bagels by the equation Q = 520 - 12P.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 = 520 - 24P. 
B) Q = 1,040 - 24P. 
C) Q = 2,080 - 48P. 
D) Q = 520 - 12P. 
E) Q = 1,040 - 12P. 
A) Q = 520 - 24P. 
B) Q = 1,040 - 24P. 
C) Q = 2,080 - 48P. 
D) Q = 520 - 12P. 
E) Q = 1,040 - 12P.

Question 10

Suppose that the inverse demand function for wool is p = A/q for some constant A.Suppose that 1/4 of the world's wool is produced in Australia.
a.If Australian wool production increases by 1% and the rest of the world holds its output constant, what will be the effect on the world price of wool?
b.How does the marginal revenue to Australia from an extra unit of wool relate to the price of wool?

Accepted Answer

a.Price will fall by

Question 11

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 12

A firm faces a demand function D(p), for which the revenue-maximizing price is $16.The demand function is altered to 2D(p).What is the new revenue-maximizing price?

Accepted Answer

A) $8 
B) $16 
C) $32 
D) There is insufficient information to determine this. 
E) none of the above. 
A) $8 
B) $16 
C) $32 
D) There is insufficient information to determine this. 
E) none of the above.

Question 13

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 14

If the demand for the Weekly World News at a local grocery store is described by Q = 2,500 - 400P - I/10for 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 15

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

Question 16

When the price of bananas is 50 cents a pound, the total demand is 100 pounds.If the price elasticity of demand for bananas is -2, what quantity would be demanded if the price rose to 60 cents a pound?

Accepted Answer

A) 50 pounds 
B) 90 pounds 
C) 60 pounds 
D) 80 pounds 
E) 70 pounds 
A) 50 pounds 
B) 90 pounds 
C) 60 pounds 
D) 80 pounds 
E) 70 pounds

Question 17

Rollo would love to have a Mercedes.His preferences for consumption in the next year are represented by a utility function U(x, y), where x = 0 if he has no Mercedes and x = 1 if he has a Mercedes for the year and where y is the amount of income he has left to spend on other stuff.If U(0, y)= the square root of y and U(1, y)= (10/9)(y.5)and if Rollo's income is $50,000 a year, how much would he be willing to pay per year to have a Mercedes?

Accepted Answer

A) $5,555.55 
B) $5,000 
C) $12,200 
D) $9,500 
E) $10,000 
A) $5,555.55 
B) $5,000 
C) $12,200 
D) $9,500 
E) $10,000

Question 18

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 100 Dodge owners.If the price of gasoline is $4.50, what is the total amount of gasoline demanded in Gas Pump?

Accepted Answer

A) 300 gallons 
B) 75 gallons 
C) 225 gallons 
D) 150 gallons 
E) none of the above. 
A) 300 gallons 
B) 75 gallons 
C) 225 gallons 
D) 150 gallons 
E) none of the above.

Question 19

The demand curve for a good is given by p = 60 - 8q, where p is the price and q is the quantity of the good.Suppose that the number of consumers in the economy doubles; a "clone" of each consumer, who has exactly the same demand curve as the original consumer, appears.The demand curve for the doubled economy is described by

Accepted Answer

A) p = 60 - 16q. 
B) p = 120 - 8q. 
C) p = 60 - 4q. 
D) p = 120 - 16q. 
E) p = 30 - 4q. 
A) p = 60 - 16q. 
B) p = 120 - 8q. 
C) p = 60 - 4q. 
D) p = 120 - 16q. 
E) p = 30 - 4q.

Question 20

The only quantities of good 1 that Tomoko can buy are 1 unit or 0 units.For all positive values of x2, Tomoko's preferences are represented by the utility function (x1 + 14)(x2 + 16).If her income is $20 and the price of good 2 is $1, then Tomoko's reservation price for good 1 is

Accepted Answer

A) $.88. 
B) $8.50. 
C) $2.40. 
D) $4.80. 
E) $1.04. 
A) $.88. 
B) $8.50. 
C) $2.40. 
D) $4.80. 
E) $1.04.

Exam 14: Market Demand-Part A

The constant elasticity of demand for cigarettes has been estimated to be 0.5.To reduce smoking by 25%, approximately how much tax needs to be added to a $1 pack?

The inverse demand function for grapes is described by the equation p = 676 - 9q, where p is the price in dollars per crate and q is the number of crates of grapes demanded per week.When p = $28 per crate, what is the price elasticity of demand for grapes?

The demand for voice mail is Q = 1,000 - 150P + 25I.Assume that per capita disposable income I is $900.At a price P of $50, the income elasticity of demand is

If the elasticity of demand curve for buckwheat is -1.25 at all prices higher than the current price, we would expect that when bad weather reduces the size of the buckwheat crop, total revenue of buckwheat producers will fall.

If the demand function is q = m - 2(ln p)over some range of values of p, then at all such values of p, the absolute value of the price elasticity of demand

If the demand curve for a good is given by the equation q = 2/p, where q is quantity and p is price, then at any positive price, the elasticity of demand will be -1.

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

A firm faces a demand function D(p), for which the revenue-maximizing price is $16.The demand function is altered to 2D(p).What is the new revenue-maximizing price?

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

If the demand for the Weekly World News at a local grocery store is described by Q = 2,500 - 400P - I/10for I = $15,000 and P = $1.50, the marginal revenue of an additional paper sold at this store is

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

When the price of bananas is 50 cents a pound, the total demand is 100 pounds.If the price elasticity of demand for bananas is -2, what quantity would be demanded if the price rose to 60 cents a pound?

The only quantities of good 1 that Tomoko can buy are 1 unit or 0 units.For all positive values of x2, Tomoko's preferences are represented by the utility function (x1 + 14)(x2 + 16).If her income is $20 and the price of good 2 is $1, then Tomoko's reservation price for good 1 is

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

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

The only quantities of good 1 that Tomoko can buy are 1 unit or 0 units.For all positive values of x₂, Tomoko's preferences are represented by the utility function (x₁ + 14)(x₂ + 16).If her income is $20 and the price of good 2 is $1, then Tomoko's reservation price for good 1 is