help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Pepperdine University FINC 655 Chapter 6 Multiple Choice Questions 1)Jim has estimated elasticity of demand for gasoline to be -0

Pepperdine University FINC 655 Chapter 6 Multiple Choice Questions 1)Jim has estimated elasticity of demand for gasoline to be -0

Finance

Pepperdine University

FINC 655

Chapter 6

Multiple Choice Questions
1)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:
    1. lower tax revenue in both the short and long run. [Demand is inelastic in the short run, but elastic in the long run, indicating different effects in the short and long run from the price reduction that results from lower taxes]
    2. raise tax revenue in both the short and long run. [Demand is inelastic in the short run, but elastic in the long run, indicating different effects in the short and long run from the price reduction that results from lower taxes]
    3. raise tax revenue in the short run but lower tax revenue in the long run. [Inelastic demand in the short run means people initially will not change their consumption habits, which will lower tax run. What are the long term effects?]
    4. lower tax revenue in the short run but raise tax revenue in the long run. [demand is inelastic in the short run, which means that initially the decrease in taxes will not alter people’s demand or consumption for gas, which will result in a decrease in the potential tax revenue as there is the same level of consumption at a lower price. However, in the long tax revenue will increase as the demand for gasoline becomes elastic, and the consumption of gasoline rises]

 

  1. Which one of the following is true?
    1. Nike has a more inelastic demand curve than shoes [False; Demand for an individual brand is more elastic than industry aggregate demand]
    2. The demand curve for gas is more elastic in the short-run than in the long-run. [False; In the long run, demand curves become more elastic]
    3. Cigarettes have a more elastic demands than televisions [False; As price increases, demand becomes more elastic].
    4. Salt has a more inelastic demand than meat [This is true, not only is salt less expensive than meat (as price increases, price becomes more elastic), but salt also has many complements (it is a staple in most households with every meal), which would indicate a less elastic demand than meat]

 

  1. Jim recently graduated from college. His income increased tremendously from earning $5000 a year to $60,000 a year. Jim decided that instead of renting he will buy a house. This implies that
    1. Houses are normal goods for Jim [for normal goods, demand increases as income increases]

 

    1. Houses are inferior goods for Jim [for inferior goods, demand decreases as income increases]
    2. Renting and Owning are complementary for Jim [Jim’s decision to purchase a house was not reflective of a change in rental rates. If anything, renting and owning are substitutes for one another]
    3. Need information on the price of houses [Not necessarily, Jim’s behavior and purchasing decision here is more informative than the actual housing prices]

 

  1. Which of the following goods have a negative income elasticity of demand?

 

    1. Cars [cars are a normal good; typically demand for cars increases with income]
    2. Items from Dollar stores [Dollar store items are typically considered inferior goods, hence their demand will decrease as the income of the user increases]
    3. Shoes [typically, shoes are considered a normal good, with demand increasing with the income of the purchaser]
    4. Bread [Bread, like most food is considered a normal good]

 

  1. 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
    1. inferior goods. [Cross price elasticity measures the change in the demand of one good with regard to the price of another in order to determine complements and substitutes. It does not reflect if a good is normal or inferior]
    2. complements. [Complements have negative cross price elasticity]
    3. inelastic. [With a cross price elasticity of 1.5>1, this relationship is elastic]
    4. substitutes. [Positive cross price elasticity means that Good A (Peanut Butter) is a substitute for Good B (Jelly)]

 

  1. Christine has purchased five bananas and is considering the purchase of a sixth. It is likely she will purchase the sixth banana if
    1. the marginal value she gets from the sixth banana is lower than its price. [Christine will not purchase an additional banana if the marginal value she receives is lower than her marginal cost (the price of the additional banana)]
    2. the marginal benefit of the sixth banana exceeds its price. [Christine will only purchase the banana when the marginal benefit she receives is greater than the marginal cost (or price) of the additional banana]
    3. the average value of the sixth bananas exceeds the price. [The marginal benefit, not the average value/benefit of the sixth banana is what is important to consider for this decision]
    4. the total personal value of six bananas exceeds the total expenditure to purchase six bananas. [Total values should not impact the decision to purchase an additional banana. Rather, the marginal benefit of the sixth banana relative to its cost should be considered]

 

  1. Buyers consider Marlboro cigarettes and Budweiser beer to be complements. If Marlboro just increased its prices, what would you expect to occur in the Budweiser market?
    1. Demand would rise, and Budweiser would reduce price. [If two goods are complements, an increase in the price of one results in a decrease in demand for the other]
    2. Demand would fall, and Budweiser would reduce price. [when two goods are complements, an increase in the price of one results in a decrease in the demand for the other. To account for this decrease in demand, Budweiser would ultimately lower its prices as well]
    3. Demand would fall, and Budweiser would increase price. [As complements, demand for Budweiser would fall as a result of the increase in Marlboro prices. An increase in prices would only further decrease demand]
    4. Demand would rise, and Budweiser would increase supply. [If two goods are complements, and increase in the price of one results in a decrease in the demand for the other]

 

  1. Which of the following is the reason for the existence of consumer surplus?

 

    1. Consumers can purchase goods that they “want” in addition to what they “need.” [Wants and needs are both a reflection of how the consumer values an item, not necessarily an indication of consumer surplus]
    2. Consumers can occasionally purchase products for less than their production cost. [Production cost is less relevant to creating consumer surplus than the amount of value a consumer places on a final good (this could in fact be lower than the production cost as well)]
    3. Some consumers receive temporary discounts that result in below-market prices. [Consumer surplus is a measure of the difference between the value a consumer places on an item and the amount they ultimately pay for it. If a consumer only purchases an item because of a discount, it indicates they likely value the item at the below-market price, so no surplus is created]
    4. Some consumers are willing to pay more than the market price. [consumer surplus exists when the Value to the consumer is greater than the final (or market) price. It is when consumers pay market price for a good they place a higher value on that a consumer surplus is created]

 

  1. A bakery currently sells chocolate chip cookies at a price of $16 per dozen. The marginal cost per dozen is $8. The cookies are becoming more popular with customers and so the bakery owner is considering raising the price to

$20/dozen. What percentage of customers must be maintained to ensure that the price increase is profitable?

    1. 28.0% [if the store only maintained 28% of its current customers, it would need to increase its prices to $36!]
    2. 33.3% [this is the number of customers the bakery can lose and still remain profitable]
    3. 66.6% [as the margin has increased from 8 (16-8) to 12(20-8), the bakery must maintain 66.6% (8/12) of its customers in order to get the same level of profitability]
    4. 72.0% [if the store maintained 72% of its current customers, it would only need to increase its prices to $19]

 

  1. A firm adopts a technology that allows you to increase your output by 15%. If the elasticity of demand in the US is

-3, how should you adjust your price if you want to sell all of your output?

  1. 5% lower. [%ΔQ= e(%ΔP). Therefore, an 15% increase in Q = -3(%ΔP), hence %ΔP = -5%]
  2. 0.5% lower. [Remember, %ΔQ= e(%ΔP)]
  3. 15% higher. [Remember, %ΔQ= e(%ΔP)]
  4. 15% lower. [Remember, %ΔQ= e(%ΔP)]

 

 

 

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

PFA

Download Attached File

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)