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University of the Cumberlands MBA 531 Assignment Three - Chapter 6 SIMPLE PRICING MULTIPLE CHOICE 1)The first law of demand states that a

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University of the Cumberlands

MBA 531

Assignment Three - Chapter 6 SIMPLE PRICING

MULTIPLE CHOICE

1)The first law of demand states that

a.            the quantity demanded increases as price falls

b.            the quantity demanded decreases as price falls

c.             the quantity demanded increases as price increases

d.            none of the above

 

2.            Its lunch time, you are hungry and would like to have some pizza. By the law of diminishing marginal value,

a.            you would pay more for your first slice of pizza than your second

b.            you would pay more for your second slice of pizza than your first

c.             you would pay an equal amount of money for both the slices since they are identical

d.            none of the above

 

3.            A demand curves describes

a.            the amount of units a consumer will purchase at a given price

b.            the amount of units a producer will sell at a given price

c.             both the amount of units that a consumer will buy and a producer will produce at a given price

d.            the amount of units supplied given a change in prices

 

4.            What criteria do consumers apply when deciding whether or not to consume

a.            The consumer would consume only if the price is lower than his highest willingness to pay

b.            The consumer would only consume if his surplus is greater than zero

c.             The consumer would only consume if the price is higher than his highest willingness to pay d. Both A&B

 

5.            If MR

a.            increase production b. decrease production

c. keep the prices constant

d. keep the production level constant

 

6.            In general, the smaller the price elasticity:

a.            the smaller the responsiveness of price to changes in quantity. b. the smaller the responsiveness of quantity to changes in price.

c. the larger the responsiveness of price to changes in quantity.

d. the larger the responsiveness of quantity to changes in price.

 

7.            The price elasticity of demand tells us about

a.            The sensitivity of price to quantity b. The sensitivity of quantity to price

c. The sensitivity of income to price

 

d. The sensitivity of income to quantity

 

8.            Jim saw a decrease in the quantity demanded for his firm’s product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250. What is Jim’s own price elasticity of demand?

a. 1.29

b. 1

c. 0.25

d. 0.78

 

9.            The government decided to reduce taxes on fast-food to increase revenue. The government assumes that fast- food products have

a.            An inelastic demand b. An elastic demand

c. A demand curve that is upward sloping

d. Unitary elastic demand curve

 

10.          If the price elasticity of demand is -0.8 and the firm increases price, revenue will a. Increase

b.            Decrease

c.             Stay constant

d.            become zero, they would lose all their customers

 

11.          Jim has estimated elasticity of demand for gasoline to be -0.7 in the short-run and -1.8 in the long run. A decrease in taxes on gasoline would:

a.            lower tax revenue in both the short and long run.

b.            raise tax revenue in both the short and long run.

c.             raise tax revenue in the short run but lower tax revenue in the long run. d. lower tax revenue in the short run but raise tax revenue in the long run.

 

12.          A perfectly elastic demand curve

a.            Is a horizontal line parallel to the x axis

b.            Has an elasticity of demand between 0 and 1

c.             Is the demand curve of a product that usually has no substitutes

d.            None of the above

 

13.          Jim recently graduated from college. His income increased dramatically;from$5000 a year to $60,000 a year. Jim decided that instead of using the bus, he would buy himself a car. This implies that

a.            The car is a normal good for Jim

b.            The car is an inferior good for Jim

c.             He is equally happy between using the bus and buying a car

d.            None of the above

 

14.          If the quantity sold of two-liter Coke bottles increases by 10% when price falls by 2%, what is the total change in revenue?

a.            Revenue increases by 12%

b.            Revenue increases by 8% c. Revenue falls by 8%

d. Revenue falls by 12%

 

15.          A research firm’s findings concluded that the demand for movie tickets is price elastic in the afternoon but inelastic in the evenings. Given this information, to increase overall revenue the theatre owners should

a.            Reduce the ticket prices for the afternoon shows and reduce the ticket prices for the evening shows

b.            Increase the ticket prices for the afternoon shows and reduce the ticket prices for the evening shows

c.             Reduce the ticket prices for the afternoon shows and increase the ticket prices for the evening shows

d.            Increase the ticket prices for the afternoon shows and increase the ticket prices for the evening shows

 

16.          An owner of a local salon realized that by decreasing the prices that she charges for haircuts, her revenue has increased. This implies that

a.            The demand for her haircuts is elastic

b.            The demand for her haircuts is inelastic

c.             The demand for her haircuts is unitary elastic

d.            The demand for her haircuts is perfectly inelastic

 

17.          The demand for Dell laptops is more price elastic than the demand for laptops as a whole. This can be best explained by the fact that

a.            There are fewer substitutes for Dell laptops than for laptops as whole b. There are more substitutes for Dell laptops than for laptops as whole

c. Dell laptops are luxurious goods

d. Dell laptops are a necessity

 

18.          The demand for a product is more inelastic

a.            When it has many close substitutes

b.            In the long-run

c.             When it has many complements

d.            None of the above

 

19.          If cars are normal goods, a fall in income will

a.            Increase the demand for cars b. Decrease the demand for cars

c. Have no effect on the demand for cars

d. None of the above

 

20.          If potatoes are inferior goods, which of the following will increase the demand for potatoes?

a.            Increase in the price of a complement b. Decrease in income

c. Decrease in the price of a substitute

 

d. Increase in income

 

21.          For complements, cross price elasticity of demand is: a. Negative

b.            Positive

c.             between zero and one only

d.            zero.

 

22.          An economist estimated the cross-price elasticity for peanut butter and jelly to be -1.5. Based on this information, we know the goods are

a.            inferior goods. b. complements.

c. inelastic.

d. substitutes.

 

 

SHORT ESSAYS

1.           

Q = 8-2P+0.10I+Px

Where Q is quantity demanded,

P is the price of the product,

I is income, and

Px is the price of a related good. Assume that P=$10, I=100, and Px=20.

Using the following equation for the demand for a good or service, Calculate the price elasticity of demand

 

 

 

 

2.           

Q = 8-2P+0.10I+Px

Where Q is quantity demanded,

P is the price of the product,

I is income, and

Px is the price of a related good. Assume that P=$10, I=100, and Px=20.

Using the following equation for the demand for a good or service, Calculate the income elasticity of demand

 

 

3. Jim saw a decrease in the quantity demanded for his firm’s product from 8000 to 6000 units a week when he raised the price of the product from $200 to $250. What is Jim’s own price elasticity of demand?

a. 1.29

b. 1

c. 0.25

d. 0.78