Question
1. A steeper demand curve indicates that Select one: a. quantity demanded is more strongly affected by changes in price. b. quantity demanded is less
1. A steeper demand curve indicates that
Select one:
a. quantity demanded is more strongly affected by changes in price.
b. quantity demanded is less strongly affected by changes in price.
c. firms change price more often when consumer demand changes.
2. When the price increased to $1.50, which demand curve resulted in higher revenue?
Select one:
a. D1, the steeper demand curve
b. D2, the flatter demand curve
Question 3
Why would steeper demand curves result in higher revenue after price increases?
Select one:
a. Consumers do not reduce their purchases very much since they are less sensitive to price increases.
b. Consumers increase their purchases after the price increase since they suspect a shortage of the product.
4. The concept of price elasticity of demand is important because it
Select one:
a. calculates the steepness of a demand line.
b. shows how demand changes when there is a change in supply.
c. quantifies how responsive quantity demand is when there are changes in price.
d. quantifies how responsive the price is when there are changes in quantity demand.
Question 5
Price elasticity of demand is calculated as
Select one:
a. the change in price divided by the change in quantity demanded.
b. the change in quantity demanded divided by the change in price.
c. the percent change in quantity demanded divided by the percent change in price.
d. the percent change in price divided by the percent change in quantity demanded.
6. The elasticity of demand for product AA is 1.4, and for product BB is 0.8. If the price of AA decreases by 1%, the quantity demand should
Select one:
a. decrease by 1/1.4 = 0.71%.
b. increase by 1.4%.
c. increase by 140%.
d. decrease by 1.4%.
Question 7
The elasticity of demand for product AA is 1.4, and for product BB is 0.8. If the price of BB increases by 2%, the quantity demand should
Select one:
a. increase by 1.6%.
b. decrease by 0.8%.
c. increase by 0.8%.
d. decrease by 1.6%.
Question 8
The elasticity of demand for product AA is 1.4, and for product BB is 0.8. Which product has more elastic (i.e., sensitive) demand?
Select one:
a. A
b. B
9. If demand is elastic, an increase in price will tend to
Select one:
a. increase total revenue.
b. not affect total revenue.
c. reduce total revenue.
Question 10
Gas prices tend to increase quickly, but fall slowly. This could be explained because
Select one:
a. costs fall slowly as well, so to maintain revenue prices have to fall slowly.
b. gasoline's inelasticity means that increasing price leads to higher revenue, but lowering price reduces revenue.
c. gasoline's elasticity means that firms always want to increase price.
d. the lack of substitutes suggests that price should always be low.
11. For a downward-sloping demand curve, except at the y-intercept, why is MR less than current price?
Select one:
a. To induce the next demander to buy, the price has to be lower than the current price.
b. MR is less than price whenever demand is inelastic.
c. Revenue is less than price because revenue subtracts costs while price does not.
d. MR reflects the previous unit sold, and profit-maximizing firms always raise price.
Question 12
Which statement is incorrect?
Select one:
a. If MR is negative, then TR is declining.
b. If MR is decreasing, then TR is negative.
c. If MR is zero, then TR is maximized.
d. If MR is decreasing but positive, then TR is increasing.
13. If you saw that incomes in a given city declined, and also saw that your sales in that city increased at the same time, you would conclude that your product is considered by consumers to be
Select one:
a. a normal good.
b. an inferior good.
Question 14
When would it be most advantageous to know the income elasticity of your product?
Select one:
a. when you see that production costs are expected to rise sharply for your product.
b. when you think that the price of your own product is expected to rise.
c. when you predict a recession is coming.
d. when you think your rival is going to cut their price.
Question 15
Your company A has a long history of rivalry with companies B and C. The cross price elasticities are E(AB)=1.2 and E(AC)=0.3 You should conclude that
Select one:
a. B is a competitor since its cross-price is greater than one, but C is a complementary product since its cross-price is less than one.
b. C is more of a competitor than B since its buyers have less elastic demand.
c. both could be considered competitors, but B is more of a competitor than C.
d. there is no relationship between A and C since the cross-price is less than one.
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