Question 1

Fred's price elasticity of demand for milk is -2 at today's prices when we measure price in dollars and quantity of milk in quarts. If the price per quart of milk stays the same but we measure quantity of milk in gallons and price in dollars, then what will be the elasticity of demand for gallons of milk? (A gallon is four quarts.)

Accepted Answer

A)  -1 
B)  -1/2 
C)  -8 
D)  -4 
E)  -2

Question 2

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 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.

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

In the village of Frankfurter, the demand function for sausages per person is D(p) = 20 - 1.5p, where p is the price of a single sausage. The present population of Frankfurter is 100 persons. Suppose that 10 more people move into town, each of whom has the same demand function as the old residents. At a price of $2, the price elasticity of demand for sausages in Frankfurter is

Accepted Answer

A)  increased by 10%. 
B)  decreased by 10%. 
C)  unchanged. 
D)  increased by 15%. 
E)  none of the above.

Question 6

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.

Question 7

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

Accepted Answer

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

Question 8

A peck is  of a bushel. If the price elasticity of demand for oats is -0.60 when oats are measured in bushels, then when oats are measured in pecks, the price elasticity of demand for oats will be

Accepted Answer

A)  20.15. 
B)  22.40. 
C)  20.30. 
D)  21.20. 
E)  none of the above.

Question 9

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.

Question 10

In Manifold, Missouri (pop. 1,000), people all have the same tastes and they all like Buicks. Nobody wants more than one Buick, but a person with income $M is willing to pay about $.10M per year to have a Buick. Nobody in Manifold has an income greater than $50,000 and nobody has an income less than $10,000. For incomes, $M, between $10,000 and $50,000, the number of people with incomes greater than $M is about 1,250 - .025M. If it costs $2,000 a year to have a Buick, how many people in Manifold will demand Buicks?

Accepted Answer

A)  500 
B)  750 
C)  100 
D)  600 
E)  800

Question 11

The demand for watches is Q = 1,000P-2.50I2. Assume that per capita income I is $6,000. At a price P of $45, the price elasticity of demand is

Accepted Answer

A)  1.0. 
B)  2.25. 
C) 2. 
D)  -0.50. 
E)  2.50.

Question 12

In a small Kansas town, there are two kinds of gasoline consumers: 100 Buick owners and 50 Dodge owners. Each Buick owner has the demand function Db(p) = max{ 0, 20 - 5p} and each Dodge owner has the demand function Dd = max{ 0, 15 - 3p}. In this town, the market demand curve has

Accepted Answer

A)  no kinks but gets steeper as price rises. 
B)  no kinks but gets flatter as price rises. 
C)  constant slope since individual demand curves have constant slope. 
D)  a kink at p = 4 and another at p = 5. 
E)  a kink at p =.

Question 13

If the equation for the demand curve is q = 20 - 2p, then the ratio of marginal revenue to price is constant as price changes.

Accepted Answer

A) True 
 B)False

Question 14

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.

Question 15

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.

Question 16

Dr. Social Science has recently figured out how to clone consumers. His first effort was done on the population of Walla, Washington. Each original citizen got a clone who had exactly the same income and preferences. Which of the following statements describes what happened to the demand function for tuna-fish casseroles in Walla?

Accepted Answer

A)  The elasticity doubled and the slope remained constant. 
B)  The elasticity did not change at any price. 
C)  The elasticity of demand doubled and the slope doubled. 
D)  The elasticity halved and the slope remained constant. 
E)  none of the above.

Question 17

Ethel is trying to decide whether to have 0 cars, 1 car, or 2 cars. If x is the number of cars she has and y is the amount of money she has per year to spend on other stuff, Ethel's utility function is U(x, y), where U(0, y) =  , U(1, y) =  , and U(2, y) =  . Suppose that it costs $2,000 a year to have 1 car and $4,000 a year to have 2 cars. Ethel finds that the right thing to do depends on her income. 
a. What is her willingness to pay for 1 car if her income is M?
b. What is the lowest income at which she would have a car?
c. What is the lowest income at which she would have 2 cars?

Accepted Answer

The answer of Ethel is trying to decide whether to...

Question 18

If the demand curve for a good is given by the equation  , 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 19

Marginal revenue is equal to price if the demand curve is horizontal.

Accepted Answer

A) True 
 B)False

Question 20

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

Exam 14: Market Demand

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.

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

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.

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

A peck is of a bushel. If the price elasticity of demand for oats is -0.60 when oats are measured in bushels, then when oats are measured in pecks, the price elasticity of demand for oats will be

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 demand for watches is Q = 1,000P^-^2.50I². Assume that per capita income I is $6,000. At a price P of $45, the price elasticity of demand is

In a small Kansas town, there are two kinds of gasoline consumers: 100 Buick owners and 50 Dodge owners. Each Buick owner has the demand function D_b(p) = max{ 0, 20 - 5p} and each Dodge owner has the demand function D_d = max{ 0, 15 - 3p}. In this town, the market demand curve has

If the equation for the demand curve is q = 20 - 2p, then the ratio of marginal revenue to price is constant as price changes.

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

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

Marginal revenue is equal to price if the demand curve is horizontal.

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?

Exam 14: Market Demand

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.

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

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.

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

A peck is of a bushel. If the price elasticity of demand for oats is -0.60 when oats are measured in bushels, then when oats are measured in pecks, the price elasticity of demand for oats will be

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

The demand for watches is Q = 1,000P-2.50I2. Assume that per capita income I is $6,000. At a price P of $45, the price elasticity of demand is

In a small Kansas town, there are two kinds of gasoline consumers: 100 Buick owners and 50 Dodge owners. Each Buick owner has the demand function Db(p) = max{ 0, 20 - 5p} and each Dodge owner has the demand function Dd = max{ 0, 15 - 3p}. In this town, the market demand curve has

If the equation for the demand curve is q = 20 - 2p, then the ratio of marginal revenue to price is constant as price changes.

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

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

Marginal revenue is equal to price if the demand curve is horizontal.

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?

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.

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 demand for watches is Q = 1,000P^-^2.50I². Assume that per capita income I is $6,000. At a price P of $45, the price elasticity of demand is

In a small Kansas town, there are two kinds of gasoline consumers: 100 Buick owners and 50 Dodge owners. Each Buick owner has the demand function D_b(p) = max{ 0, 20 - 5p} and each Dodge owner has the demand function D_d = max{ 0, 15 - 3p}. In this town, the market demand curve has

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