price elasticity of demand

price elasticity of demand

Question
1.A market demand curve is likely to shift to the right when:
Select one:
A. average income falls
B. prices fall
C. prices rise
D. new buyers enter the market
E. new firms enter the market
Question
2.The demand for textbooks is Q = 200 – P + 25U – 50Pbeer. Assume that the
unemployment rate U is 8 and the price of beer Pbeer is $2. When the
average price of a textbook is P = $100, the price elasticity of demand is:
Select one:
A. -1.0
B. -2.0
C. -0.5
D. -50
E. -5.0
Question
3.The price elasticity of demand for Portland cement at a local retail outlet is
-3 at the current price of $3. If the marginal cost is $2, then the store
manager should:
Select one:
A. increase the price to $4
B. lower the price to $2.75
C. quit selling cement
D. leave the price unchanged
E. lower the price to $2.50
Question
4.Total revenue can be defined as:
Select one:
A. average revenue multiplied by marginal revenue
B. average revenue divided by marginal revenue
C. average revenue multiplied by output
D. average revenue divided by output
E. marginal revenue divided by output
Question
5.The demand for a product is more inelastic the:
Select one:
A. more narrowly defined the product
B. longer the time period covered
C. lower the average income of consumers
D. better the available substitutes
E. poorer the available substitutes
Question

6

Marginal revenue can be defined in terms of price (P) and elasticity (h) as:
Select one:
A. MR = P(h + 1/h)
B. P = MR(1/h)
C. MR = Ph
D. MR = P(1 + 1/h)
E. P = MR(1 – 1/h)

Question

7

If price is $25 when the price elasticity of demand is -0.5, then marginal
revenue must be:
Select one:
A. $50
B. -$25
C. $12.50
D. $37.50

E. $25
Question

8

If the marginal cost of seating a theatergoer is $5 and the elasticity of
demand is -4, the profit-maximizing price is:
Select one:
A. $3.33
B. $5.00
C. $10.00
D. $13.33
E. $6.67
Question

9

Marginal revenue can be defined as the:
Select one:
A. percent increase in total revenue resulting from a one percent increase
in output
B. increase in total revenue resulting from a one unit increase in output
C. total revenue divided by output
D. average revenue multiplied by output
E. average revenue multiplied by output divided by 4
Question

10

A manufacturer of infant clothes has found that the demand for its product
is given by Q = 100P-1.25A0.5, where P is price and A is advertising
expenditures. The price elasticity of demand for these infant clothes is:
Select one:
A. -0.8
B. -1.25
C. -1.0
D. -2.5
E. -0.5

Question

11

The income elasticity of demand is defined as the:
Select one:
A. percentage change in the quantity demanded divided by the percentage
change in the price level
B. change in the quantity demanded divided by the change in per capita
income
C. percentage change in income divided by the percentage change in the
quantity demanded
D. change in per capita income divided by the change in the quantity
demanded
E. percentage change in the quantity demanded divided by the percentage
change in per capita income
Question

12

Consumer surplus is defined as:
Select one:
A. the quantities of a good or service that bring equal utility to the
consumer
B. the quantity of a good or service that is utility maximizing for the
consumer
C. the difference between what a consumer is willing to pay and what he or
she actually pays for a good or service
D. the difference between the market price and the marginal cost of
producing a good or service
E. none of the above

Question
13.Consumer surplus is important to firms because:
Select one:
A. it represents value consumers receive that they do not pay for
B. market prices must incorporate consumer surplus
C. they must pay taxes based on the level of consumer surplus
D. if firms can capture it, they can increase their profitability