Question 1

Briefly explain the economic concept of elasticity.

Accepted Answer

The answer of Briefly explain the economic concept of elasticity....

Question 2

If the market for a product is broadly defined,then

Accepted Answer

A) the good has many complements. 
B) there are few substitutes for the product and the demand for the product is relatively inelastic. 
C) there are many substitutes for the product and the demand for the product is relatively elastic. 
D) the expenditure on the good is likely to make up a large share of one's budget.

Question 3

Maurice Allais,Reinhard Selten and Vernon Smith all were awarded the Nobel Prize in Economics in part because

Accepted Answer

A) of their work with experimental economics. 
B) they discovered the first example of a Giffen good. 
C) of their work on the substitution and income effects of price changes. 
D) they proved that external economies would lead to market failure.

Question 4

Consider the following hypothetical scenarios:
Scenario A: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the pair of jeans you wish to buy is on sale for $160 at another store,located about a 20-minute drive away.
Scenario B: You are about to purchase a pair of 7 for All Mankind jeans for $175 and a t-shirt for $45.The sales attendant at the store tells you that the t-shirt you wish to buy is on sale for $30 at another store,located about a 20-minute drive away.
Based on standard economic theory,under which scenario would you make the 20-minute trip to the other store?

Accepted Answer

A) Scenario A because the pair of jeans is a very expensive item and $15 saving is quite substantial 
B) Scenario B because a $15 saving amounts to a substantial discount (about 33 percent) 
C) in either scenario if I think a $15 savings is worth the 20-minute trip 
D) in none of these scenarios if I think the $15 saving is not worth the 20-minute trip 
E) C and D are correct answers.

Question 5

The demand for heating oil in the short run is more elastic than the long run demand for heating oil.

Accepted Answer

A) True 
 B)False

Question 6

Table 7-1
 $$\begin{array} { | c | c | c | c | } 
\hline \begin{array} { c } 
\text { Quantity of } \
\text { Pita Wraps }
\end{array} & \text { Total Utility } & \begin{array} { c } 
\text { Quantity of } \
\text { Bubble Tea }
\end{array} & \text { Total Utility } \
\hline 1 & 60 & 1 & 40 \
\hline 2 & 102 & 2 & 70 \
\hline 3 & 132 & 3 & 91 \
\hline 4 & 144 & 4 & 106 \
\hline 5 & 144 & 5 & 112 \
\hline 6 & 138 & 6 & 115 \
\hline 7 & 128 & 7 & 115 \
\hline
\end{array}$$ 
Keegan has $30 to spend on Pita Wraps and Bubble Tea.The price of a Pita Wrap is $6 and the price of a glass of Bubble Tea is $3. Table 7-1 shows his total utility from different quantities of the two items.
-Refer to Table 7-1.What is Keegan's optimal consumption bundle?

Accepted Answer

A) 3 pita wraps and 3 bubble teas 
B) 3 pita wraps and 4 bubble teas 
C) 4 pita wraps and 2 bubble teas 
D) 5 pita wraps and 0 bubble teas

Question 7

The order of the letters along the rows of computer keyboards could be changed to allow users to type faster,but this would inconvenience the vast majority of people who learned to type with the current keyboard layout.The costs of switching to a new layout make this change unlikely.This is an example of

Accepted Answer

A) path dependency. 
B) how social influences overwhelm the substitution effect of a price change. 
C) how the elasticity of demand for typewriters has been affected by externalities. 
D) how consumers sometimes do not behave rationally.

Question 8

Table 7-11
 $$\begin{array} { | c | c | } 
\hline \begin{array} { c } 
\text { Hourly } \
\text { Rental Rate } \
\text { (dollars) }
\end{array} & \begin{array} { c } 
\text { Quantity } \
\text { Demanded } \
\text { (hours) }
\end{array} \
\hline \$ 60 & 40 \
\hline 75 & 32 \
\hline 80 & 30 \
\hline 100 & 24 \
\hline
\end{array}$$
-Refer to Table 7-11.Katie Graham owns a kayak rental service in Santa Barbara.Table 6.3 below shows her estimated demand schedule for kayak rentals per week.She would like to increase her sales revenue by changing the price she charges for rentals.At present she charges $75.Based on the information in the table,Katie

Accepted Answer

A) is not able to increase her revenue by changing her price because the demand for kayak rentals is unit-elastic. 
B) should lower her price to $60 to increase her revenue because the demand for kayak rentals is price elastic. 
C) should raise her price to $80 to increase her revenue because the demand for kayak rentals is price inelastic. 
D) should raise her price to earn the most revenue.

Question 9

Suppose that at a price of $55,100 units were sold while at a price of $33,153 units were sold.Without calculating the price elasticity value,can you determine whether demand is elastic,unit-elastic,or inelastic? Explain your answer.

Accepted Answer

The answer of Suppose that at a price of $55,100...

Question 10

If the demand for a steak is unit-elastic,then

Accepted Answer

A) the percentage change in quantity demanded is 1 percent greater than the percentage change in price. 
B) the percentage change in quantity demanded is equal to the percentage change in price. 
C) the percentage change in quantity demanded is 100 percent greater than the percentage change in price (in absolute value). 
D) quantity demanded does not respond to changes in price.

Question 11

A perfectly elastic demand curve is

Accepted Answer

A) vertical. 
B) horizontal. 
C) curvilinear. 
D) upward sloping.

Question 12

Which of the following explains why a firm would be interested in the knowing the price elasticity of demand for a good it sells?

Accepted Answer

A) The price elasticity of demand can be used to determine the impact of changes in income on quantity sold. 
B) Knowing the price elasticity of demand allows the firm to determine how the cost of producing additional units of the good will change. 
C) Knowing the price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total profit. 
D) The price elasticity of demand allows the firm to calculate how changes in the price of the good will affect the firm's total revenue.

Question 13

Which of the following statements describes economists' attitudes regarding the influence of social factors on the choices consumers make?

Accepted Answer

A) Economists formerly believed they were very important but now they believe they are not important. 
B) Economists believe social factors affect consumer choice in markets for public goods but not in markets for private goods. 
C) Liberal economists believe social factors are very important; conservative economists do not believe social factors have any influence on consumers. 
D) Economists traditionally believed they were unimportant, but many economists now believe social factors are important.

Question 14

If a firm wanted to know whether the demand for its product was elastic,unit-elastic,or inelastic,then the firm could

Accepted Answer

A) survey competitors and ask them what they think demand elasticity is for the product. 
B) talk to its customers. 
C) change price a little bit and observe what happens to total revenue. 
D) not do anything as there is no way to find an elasticity value.

Question 15

Terence has $50 per week to spend on Subway sandwiches and milkshakes.The price of a Subway sandwich is $5 and the price of a milkshake is $4.He buys 6 sandwiches and 5 milkshakes.The marginal utility of the 6th sandwich = 25 and the marginal utility of the 5th milkshake = 24.Which of the following is true?

Accepted Answer

A) He is not maximizing his utility and should buy more milkshakes. 
B) He is maximizing his utility. 
C) He is not maximizing his utility and should buy more Subway sandwiches. 
D) He is not maximizing his utility because he is not spending all of his income.

Question 16

If a firm lowered the price of the product it sells and found that total revenue did not change,then the demand for its product is

Accepted Answer

A) perfectly inelastic. 
B) perfectly elastic. 
C) unit-elastic. 
D) relatively elastic.

Question 17

When demand is unit-elastic,a change in price causes total revenue to stay the same because

Accepted Answer

A) the percentage change in quantity demanded exactly offsets the percentage change in price. 
B) buyers are buying the same quantity. 
C) total revenue never changes with price changes. 
D) the change in profit is offset by the change in production cost.

Question 18

When the price of tortilla chips rose by 10 percent,the quantity of tortilla chips sold fell 4 percent.This indicates that the demand for tortilla chips is

Accepted Answer

A) inelastic. 
B) elastic. 
C) unit-elastic. 
D) perfectly inelastic.

Question 19

Figure 7-2
  
Figure 7-2 represents the demand for ice cream cones.
-Refer to Figure 7-2.When the price of ice cream cones increases from $2 to $3,quantity demanded decreases from 4 ice cream cones to 3 ice cream cones.This change in quantity demanded is due to

Accepted Answer

A) the price and output effects. 
B) the income and substitution effects. 
C) the law of diminishing marginal utility. 
D) the fact that marginal willingness to pay falls.

Question 20

Ali's Gyros operates near a college campus.Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut.He estimates that he would be able to sell 200 gyros per day at $3.50 each.
a.Calculate the price elasticity of demand using the midpoint formula.
b.Calculate the change in revenue as a result of the price cut.

Accepted Answer

The answer of Ali's Gyros operates near a college campus.Ali...

Exam 7: Consumer Choice and Elasticity