Question 1

Assume that several firms compete in the market for cellular phones, and that the price elasticity for this industry is equal to 0.75. Based on this information, would you advise a firm in this industry to increase its price? If so, what is the percentage loss in total sales this firm should expect to experience?

Accepted Answer

A)  Definitely yes. Total revenues would increase, since  < 1. Sales would decrease by only .75% for each 1% increase in price. 
B)  Not enough information is provided to make a sound decision. For the same reason it is not possible to predict what the loss in sales for one firm would be. 
C)  Definitely no. Each 1% increase in price would result in 7.5% reduction in total sales, negatively affecting total revenues. 
D)  Definitely no. Each 1% increase in price would result in 7.5% reduction in total sales, affecting total revenues positively.

Question 2

Assume the demand curve for skirts in Europe is P = 100 - QE (or Qe=100 - P), while the U.S demand is P = 100 - ¼QUS. (or Qus = 400 - 4P). Over the range of prices which demand is more price elastic?

Accepted Answer

A)  U.S. demand is more elastic. 
B)  European demand is more elastic. 
C)  It depends on the price level. 
D)  U.S. and European demand have the same elasticity for any price level.

Question 3

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then:

Accepted Answer

A)  skin care products are a normal good. 
B)  the elasticity of demand is equal to 11. 
C)  skin care products are inferior. 
D)  The price is too high

Question 4

Which ONE of the following statements correctly expresses the elasticity formula for Edt?

Accepted Answer

A)   
B)   
C)   
D)

Question 5

Let Edt = -2. This implies that the demand for movie tickets is

Accepted Answer

A)  Inelastic, because a 1% change in Pt changes Qdt by 2 units 
B)  Inelastic, because a 1% change in Pt changes Qdt by 1% 
C)  Elastic, because a 1% change in Pt changes Qdt by 1% 
D)  Elastic, because a 1% change in Pt changes Qdt by 2%

Question 6

Assume the demand function for SeatComfy's table chairs is as given in the previous question (Q = 5,000 - 25P + 4I +10PA - 15PT). Moreover, assume that currently P = 10, PA = 15, I = 500, PT = 100. Which of the following is true?

Accepted Answer

A)  If SeatComfy increases its price by 1%, sales will increase as well as total revenues. 
B)  If SeatComfy decreases its price by 1%, sales will increase, while total revenues will decrease. 
C)  If SeatComfy increases its price by 1%, sales will decrease, while total revenues will increase. 
D)  If SeatComfy increases its price by 1%, sales will decrease as well as total revenues.

Question 7

Let EdGIrefer to the income elasticity for gasoline. Suppose EdGI= 2, then this means that

Accepted Answer

A)  if income increases by 2%, then QdGwill increase by 1% 
B)  if income decreases by 1%, then QdGwill decrease by 2% 
C)  if income increases by $1, then QdGwill decrease by 2% 
D)  if income decreases by 2%, then QdGwill decrease by 1%

Question 8

BrightLight Ltd. estimates the demand curve for its table lamps to be Q = 1,000 - 4 P. That is, P = 250- .25Q. Which of the following is NOT true?

Accepted Answer

A)  The maximum total revenue BrightlLight can obtain is $62,500. 
B)  The Marginal Revenue curve for BrightLight's table lamps is given by MR = 250 - ½ Q. 
C)  The elasticity of demand for BrightLight's table lamps is equal to 7.5 when their price is $125. 
D)  BrightLight maximizes its total revenues when selling 500 lamps.

Question 9

Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10PA - 15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?

Accepted Answer

A)  SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each $10 increase in their own price. 
B)  SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes, while SeatComfy's sales are not affected by the pricing decisions of tables' producers. SeatComfy's sales increase by 50% if the price decreases by $2. 
C)  SeatComfy's chairs are a normal good; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units for each dollar increase in price. 
D)  SeatComfy's chairs are a normal good; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each dollar increase in price.

Question 10

"Inelastic demand" means that

Accepted Answer

A)  Quantity demanded is very sensitive to price 
B)  Quantity demanded is not very sensitive to price 
C)  Price is very sensitive to quantity demanded 
D)  Price is not very sensitive to quantity demanded

Question 11

Edt = - 5. This means that if

Accepted Answer

A)  Pt increases by 5%, then Qdt will decrease by 1% 
B)  Qdt increases by 5%, Pt will decrease by 1% 
C)  Pt increases by 1%, Qdt will decrease by 5% 
D)  Pt decreases by $1.00, Qdt will decrease by 5 units

Exam 4: Demand

Assume the demand curve for skirts in Europe is P = 100 - Q_E (or Q_e=100 - P) , while the U.S demand is P = 100 - ¼Q_US. (or Q_us = 400 - 4P) . Over the range of prices which demand is more price elastic?

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then:

Which ONE of the following statements correctly expresses the elasticity formula for Ed_t?

Let Ed_t= -2. This implies that the demand for movie tickets is

Assume the demand function for SeatComfy's table chairs is as given in the previous question (Q = 5,000 - 25P + 4I +10P_A - 15P_T) . Moreover, assume that currently P = 10, P_A = 15, I = 500, P_T = 100. Which of the following is true?

Let Ed_GIrefer to the income elasticity for gasoline. Suppose Ed_GI= 2, then this means that

BrightLight Ltd. estimates the demand curve for its table lamps to be Q = 1,000 - 4 P. That is, P = 250- .25Q. Which of the following is NOT true?

Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10P_A - 15 P_T, where P = the price of SeatComfy's chairs; P_A = average price of competitors' chairs; P_T = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?

"Inelastic demand" means that

Ed_t= - 5. This means that if

Exam 4: Demand

Assume the demand curve for skirts in Europe is P = 100 - QE (or Qe=100 - P) , while the U.S demand is P = 100 - ¼QUS. (or Qus = 400 - 4P) . Over the range of prices which demand is more price elastic?

Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then:

Which ONE of the following statements correctly expresses the elasticity formula for Edt?

Let Edt = -2. This implies that the demand for movie tickets is

Assume the demand function for SeatComfy's table chairs is as given in the previous question (Q = 5,000 - 25P + 4I +10PA - 15PT) . Moreover, assume that currently P = 10, PA = 15, I = 500, PT = 100. Which of the following is true?

Let EdGIrefer to the income elasticity for gasoline. Suppose EdGI= 2, then this means that

BrightLight Ltd. estimates the demand curve for its table lamps to be Q = 1,000 - 4 P. That is, P = 250- .25Q. Which of the following is NOT true?

Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10PA - 15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?

"Inelastic demand" means that

Edt = - 5. This means that if

Assume the demand curve for skirts in Europe is P = 100 - Q_E (or Q_e=100 - P) , while the U.S demand is P = 100 - ¼Q_US. (or Q_us = 400 - 4P) . Over the range of prices which demand is more price elastic?

Which ONE of the following statements correctly expresses the elasticity formula for Ed_t?

Let Ed_t= -2. This implies that the demand for movie tickets is

Assume the demand function for SeatComfy's table chairs is as given in the previous question (Q = 5,000 - 25P + 4I +10P_A - 15P_T) . Moreover, assume that currently P = 10, P_A = 15, I = 500, P_T = 100. Which of the following is true?

Let Ed_GIrefer to the income elasticity for gasoline. Suppose Ed_GI= 2, then this means that

Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 - 25P + 4I +10P_A - 15 P_T, where P = the price of SeatComfy's chairs; P_A = average price of competitors' chairs; P_T = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?

Ed_t= - 5. This means that if