Managerial economics and business strategy test bank 8th edtion baye prince

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the: Learning Objective: 03-01 Apply various elasticities of deman

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Managerial Economics And Business Strategy Test Bank 8th Edtion Baye Prince

Multiple Choice Questions

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1 Assume that the price elasticity of demand is -2 for a certain firm's product If the firm raises price, the firm's managers can expect total revenue to:

A decrease

B increase

C remain constant

D either increase or remain constant, depending upon the size of the price increase

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Illustrate the relationship between the elasticity of demand and total revenues

Topic: Own Price Elasticity of Demand

2 A price elasticity of zero corresponds to a demand curve that is:

A horizontal

B downward sloping with a slope always equal to 1

C vertical

D either vertical or horizontal

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium Learning Objective: 03-02 Illustrate the relationship between the elasticity of demand and total revenues

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3 As we move down along a linear demand curve, the price elasticity of demand becomes more:

4 If the demand for a product is Qxd = 10 - ln Px, then product x is:

A elastic

B inelastic

C unitary elastic

D Cannot be determined without more information

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-05 Show how to determine elasticities from linear and log-linear demand functions

Topic: Obtaining Elasticities From Demand Functions

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5 The demand for good X has been estimated by Qxd = 12 - 3Px + 4Py Suppose that good X sells

at $2 per unit and good Y sells for $1 per unit Calculate the own price elasticity

6 The own price elasticity of demand for apples is -1.2 If the price of apples falls by 5 percent, what will happen to the quantity of apples demanded?

A It will increase 5 percent

B It will fall 4.3 percent

C It will increase 4.2 percent

D It will increase 6 percent

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium

Learning Objective: 03-01 Apply various elasticities of demand as a quantitative tool to forecast changes in revenues; prices;

and/or units sold Topic: Own Price Elasticity of Demand

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7 If apples have an own price elasticity of -1.2 we know the demand is:

8 If quantity demanded for sneakers falls by 10 percent when price increases 25 percent, we know that the absolute value of the own price elasticity of sneakers is:

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9 The quantity consumed of a good is relatively unresponsive to changes in price whenever demand is:

10 If the absolute value of the own price elasticity of steak is 0.4, a decrease in price will lead to:

A a reduction in total revenue

B an increase in total revenue

C no change in total revenue

D None of the statements is correct

AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy Learning Objective: 03-02 Illustrate the relationship between the elasticity of demand and total revenues

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11 If a price increase from $5 to $7 causes quantity demanded to fall from 150 to 100, what is the absolute value of the own price elasticity at a price of $7?

Topic: The Elasticity Concept

12 Demand is perfectly elastic when the absolute value of the own price elasticity of demand is:

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13 The demand curve for a good is horizontal when it is:

A a perfectly inelastic good

B a unitary elastic good

C a perfectly elastic good

D an inferior good

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy Learning Objective: 03-02 Illustrate the relationship between the elasticity of demand and total revenues

14 Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000 What

is the own price elasticity of demand?

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15 Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000 Then good X has a demand which is:

16 Suppose Qxd = 10,000 - 2 Px + 3 Py - 4.5M, where Px = $100, Py = $50, and M = $2,000 How much of good X is consumed?

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17 Which of the following factors would NOT affect the own price elasticity of a good?

Learning Objective: 03-03 Discuss three factors that influence whether the demand for a given product is relatively elastic or

inelastic Topic: Own Price Elasticity of Demand

18 Lemonade, a good with many close substitutes, should have an own price elasticity that is:

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19 We would expect the demand for jeans to be:

A more elastic than the demand for clothing

B less elastic than the demand for clothing

C the same as the demand for clothing

D neither more elastic, less elastic, nor the same elasticity as that of the demand for clothing

AACSB: Reflective Thinking Blooms: Understand Difficulty: 2 Medium

20 Demand is more inelastic in the short term because consumers:

A are impatient

B have no time to find available substitutes

C are present-oriented

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21 We would expect the own price elasticity of demand for food to be:

A less elastic than the demand for cereal

B more elastic than the demand for cereal

C the same as that for soap

D perfectly inelastic

22 The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

and/or units sold Topic: Cross-Price Elasticity

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23 If the cross-price elasticity between goods A and B is negative, we know the goods are:

24 If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4 percent increase in the price of ketchup will lead to a 4.8 percent:

A drop in quantity demanded of ketchup

B drop in quantity demanded of hamburgers

C increase in quantity demanded of ketchup

D increase in quantity demanded of hamburgers

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25 If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross-price elasticity of apple sauce and pork chops at

a pork chop price of $6?

26 Suppose the demand function is Qxd = 100 - 8Px + 6Py - M If Px = $4, Py = $2, and M = $10, what is the cross-price elasticity of good x with respect to the price of good y?

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27 The elasticity that measures the responsiveness of consumer demand to changes in income is the:

A income elasticity

B own price elasticity

C cross-price elasticity

D neither the income elasticity, the own price elasticity, nor the cross-price elasticity

AACSB: Reflective Thinking Blooms: Remember Difficulty: 1 Easy

and/or units sold Topic: Income Elasticity

28 An income elasticity less than zero tells us that the good is:

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29 If the income elasticity for lobster is 0.4, a 40 percent increase in income will lead to a:

A 10 percent drop in demand for lobster

B 16 percent increase in demand for lobster

C 20 percent increase in demand for lobster

D 4 percent increase in demand for lobster

30 You are the manager of a supermarket, and you know that the income elasticity of peanut butter is exactly -0.7 Due to the economic recession, you expect incomes to drop by 15

percent next year How should you adjust your purchase of peanut butter?

A Buy 10.5 percent more peanut butter

B Buy 2.14 percent more peanut butter

C Buy 6.2 percent less peanut butter

D Buy 9.8 percent less peanut butter

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31 Suppose demand is given by Qxd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50 What is the advertising elasticity of demand for good x?

32 Suppose demand is given by Qxd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50 What is the quantity demanded of good x?

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33 You are the manager of a popular shoe company You know that the advertising elasticity of demand for your product is 0.15 How much will you have to increase advertising in order to increase demand by 10 percent?

and/or units sold Topic: Other Elasticities

34 Suppose the demand for good x is ln Qxd = 21 - 0.8 ln Px - 1.6 ln Py + 6.2 ln M + 0.4 ln Ax Then

we know goods x and y are:

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we know good x is:

we know that the own price elasticity for good x is:

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37 Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H Then the cross-price elasticity between goods x and y is:

38 Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H Then good x is:

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39 Suppose the demand function is given by Qxd = 8Px0.5 Py0.25 M0.12 H Then the demand for good

40 The statistical analysis of economic phenomena is defined as:

Learning Objective: 03-06 Explain how regression analysis may be used to estimate demand functions; and how to interpret and

use the output of a regression Topic: Regression Analysis

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41 The demand for video recorders has been estimated to be Qv = 134 - 1.07Pf + 46Pm - 2.1Pv - 5I, where Qv is the quantity of video recorders, Pf denotes the price of video recorder film, Pm is the price of attending a movie, Pv is the price of video recorders, and I is income Based on the estimated demand equation we can conclude:

A video recorders are inferior goods

B video recorder film is a substitute for video recorders

C the demand for video recorders is inelastic

D the demand for video recorders is neither inferior nor inelastic, and video recorder film is not

a substitute for video recorders

AACSB: Analytic Blooms: Apply Difficulty: 2 Medium Learning Objective: 03-05 Show how to determine elasticities from linear and log-linear demand functions

42 Which of the following is used to determine the statistical significance of a regression

use the output of a regression

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43 Which of the following provides a measure of the overall fit of a regression?

A t-statistic

B F-statistic

C R-square

D The F-statistic and R-square

44 Which of the following can be used to quantify the overall statistical significance of a

D The F-statistic and R-square

AACSB: Reflective Thinking Blooms: Remember Difficulty: 2 Medium

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45 Which of the following measures of fit penalizes a researcher for estimating many coefficients with relatively little data?

A t-statistic

B R-square

C Adjusted R-square

D Neither the t-statistic, the R-square, nor the adjusted R-square

46 As a rule of thumb, a parameter estimate is statistically different from zero when the absolute value of the t-statistic is:

A zero

B less than one

C greater than or equal to 1

D greater than or equal to 2

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47 A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: ln M = 14.666 + 021 ln C - 0.036 ln r, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank

deposits Based on this study we know that the interest elasticity is:

48 A study has estimated the effect of changes in interest rates and consumer confidence on the demand for money to be: ln M = 14.666 + 021 ln C - 0.036 ln r, where M denotes real money balances, C is an index of consumer confidence, and r is the interest rate paid on bank

deposits Based on this study, a 5 percent increase in interest rates will cause the demand for money to:

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49 The elasticity of variable G with respect to variable S is defined as:

A the percentage change in variable G that results from a given percentage change in

variable S

B the percentage change in variable G that results from a given change in variable S

C the change in variable G that results from a given percentage change in variable S

D the change in variable G that results from a given change in variable S

and/or units sold Topic: The Elasticity Concept

50 If the absolute value of the own price elasticity of demand is greater than 1, then demand is said to be:

A elastic

B inelastic

C unitary elastic

D neither elastic, inelastic, nor unitary elastic

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51 Suppose the own price elasticity of demand for good X is -0.5, and the price of good X

increases by 10 percent We would expect the quantity demanded of good X to:

52 Suppose the own price elasticity of demand for good X is -0.5, and the price of good X

increases by 10 percent What would you expect to happen to the total expenditures on good X?

A Increase

B Decrease

C Remain unchanged

D Neither increase, decrease, nor remain unchanged

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53 If the own price elasticity of demand is infinite in absolute value, then:

A demand is perfectly inelastic

B the demand curve is horizontal

C consumers do not respond at all to changes in price

D demand is neither perfectly inelastic nor is the demand curve horizontal

54 If demand is perfectly inelastic, then:

A the own price elasticity of demand is infinite in absolute value

B a small increase in price will lead to a situation where none of the good is purchased

C the demand curve is vertical

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55 The demand for good X is estimated to be Qxd = 10,000 - 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units What is the demand curve for good X?

56 The demand for good X is estimated to be Qxd = 10,000 - 4PX + 5PY + 2M + AX where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units What is the quantity demanded of good X?

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57 The demand for good X is estimated to be Qxd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units What is the own price elasticity of demand for good X?

58 The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units Based on this information, we know that the demand for good X is:

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59 The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units Based on this information, the cross-price elasticity between goods X and Y is:

60 The demand for good X is estimated to be Qxd = 10,000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units Based on this information, goods X and Y are:

Topic: Cross-Price Elasticity

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61 The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units Based on this information, the income elasticity of good X is:

62 The demand for good X is estimated to be Qxd = 10, 000 - 4PX + 5PY + 2M + AX, where PX is the price of X, PY is the price of good Y, M is income, and AX is the amount of advertising on X Suppose the present price of good X is $50, PY = $100, M = $25,000, and AX = 1,000 units Based on this information, good X is:

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63 When a demand curve is linear,

A the elasticity is the same as the slope of the demand curve

B demand is elastic at high prices

C demand is unitary elastic at low prices

D the elasticity is constant at all prices

64 Which of the following is NOT an important factor that affects the magnitude of the own price elasticity of a good?

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65 If there are few close substitutes for a good, demand tends to be relatively:

A elastic

B inelastic

C unitary elastic

D neither elastic, inelastic, nor unitary elastic

66 The demand for food (a broad group) is more:

A elastic than the demand for beef (specific commodity)

B inelastic than the demand for beef (specific commodity)

C sensitive to price changes than the demand for beef

D responsive to price changes than the demand for beef

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67 The demand for women's clothing is, in general:

A more elastic than the demand for clothing

B less elastic than the demand for clothing

C equally elastic to the demand for clothing

D neither more elastic, less elastic, nor equally elastic to the demand for clothing

68 Demand tends to be:

A more elastic in the short term than in the long term

B more inelastic in the short term than in the long term

C equally elastic in the short term and in the long term

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69 If the short-term own price elasticity for transportation is estimated to be -0.6, then long-term own price elasticity is expected to be:

A -0.6

B greater than -0.6

C less than -0.6

D neither greater than, less than, nor equal to -0.6

AACSB: Reflective Thinking Blooms: Understand Difficulty: 3 Hard

70 Since most consumers spend very little on salt, a small increase in the price of salt will:

A reduce quantity demanded by a large amount

B not reduce quantity demanded by very much

C not change quantity demanded

D increase quantity demanded by a small amount

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71 Suppose the income elasticity for transportation is 1.8 Which of the following is an

INCORRECT statement?

A Transportation is a normal good

B Expenditures on transportation grow more rapidly than income grows

C Expenditures on transportation will fall less rapidly than income falls

D Whenever the income increases by 1 percent, the expenditure on transportation increases

by 1.8 percent

72 Non-fed ground beef is an inferior good In economic booms, grocery managers should:

A increase their orders of non-fed ground beef

B reduce their orders of non-fed ground beef

C not change their orders of non-fed ground beef

D neither increase, reduce, nor maintain their current orders for non-fed ground beef

AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy

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73 The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M The own price elasticity of good X is:

74 The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M The cross-price elasticity of demand between goods X and Y is:

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75 The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M The income elasticity of good X is:

76 The demand for good X has been estimated to be ln Qxd = 100 - 2.5 ln PX + 4 ln PY + ln M The advertising elasticity of good X is:

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77 The greater the standard error of an estimated coefficient:

A the greater the t-value of the estimated coefficient

B the lower the t-value of the estimated coefficient

C the greater the R-square

D the greater the adjusted R-square

AACSB: Reflective Thinking Blooms: Understand Difficulty: 1 Easy

78 For a given set of data and a regression equation, the greater the R-square:

A the greater the t-value

B the lower the t-value

C the greater the adjusted R-square

D the lower the adjusted R-square

AACSB: Reflective Thinking Blooms: Understand Difficulty: 3 Hard

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