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Chapter 03Chapter 03Quantitative Demand Analysis

Multiple Choice Questions 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.

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.

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

A. elastic.

B. inelastic.

C. log-linear.

D. variable.

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.

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.

A. -0.2

B. -0.3

C. -0.5

D. -0.6

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.

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

A. unitary.

B. indeterminate.

C. elastic.

D. inelastic.

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:

A. 2.5.

B. 0.4.

C. 2.0.

D. 0.27.

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

A. elastic.

B. unitary.

C. falling.

D. inelastic.

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.

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?

A. 0.57

B. 1.75

C. 0.02

D. 1.24

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

A. zero.

B. one.

C. infinite.

D. unknown.

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.

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?

A. -2.34

B. -0.78

C. -0.21

D. -1.21

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:

A. elastic.

B. inelastic.

C. unitary.

D. neither elastic, inelastic, nor unitary elastic.

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?

A. 100 units

B. 500 units

C. 1,100 units

D. 950 units

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

A. Time

B. Price of an input

C. Available substitutes

D. Expenditure share

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

A. unitary.

B. relatively elastic.

C. relatively inelastic.

D. perfectly inelastic.

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.

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.

D. None of the statements is correct.

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:

A. own price elasticity.

B. income elasticity.

C. log-linear elasticity.

D. cross-price elasticity.

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

A. inferior goods.

B. complements.

C. inelastic.

D. substitutes.

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.

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?

A. -1.17

B. 2.71

C. 0.42

D. -0.86

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?

A. 0.17

B. 0.38

C. 0.21

D. 0.04

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.

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

A. a normal good.

B. a Giffen good.

C. an inferior good.

D. an inelastic good.

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.

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?

A. 1.12

B. 0.38

C. 1.92

D. 0.52

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?

A. 96

B. 50

C. 46

D. 72

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?

A. 0.02 percent

B. 38.6 percent

C. 66.7 percent

D. 4.3 percent

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:

A. substitutes.

B. complements.

C. normal goods.

D. inferior goods.

35. 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 good x is:

A. an inferior good.

B. an elastic good.

C. a normal good.

D. a Giffen good.

36. 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 that the own price elasticity for good x is:

A. unitary.

B. elastic.

C. inelastic.

D. It cannot be calculated from the existing information.

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:

A. 4.00.

B. 0.25.

C. 0.50.

D. 8.33.

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

A. a normal good.

B. an inferior good.

C. a complement for good y.

D. perfectly inelastic.

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

A. inelastic.

B. unitary.

C. elastic.

D. perfectly elastic.

40. The statistical analysis of economic phenomena is defined as:

A. econometrics.

B. variance.

C. confidence intervals.

D. standard deviation.

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.

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

A. t-statistic

B. F-statistic

C. R-square

D. Adjusted R-square

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 regression?

A. t-statistic

B. F-statistic

C. R-square

D. The F-statistic and R-square

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.

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:

A. unitary.

B. zero.

C. very elastic.

D. very inelastic.

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:

A. drop by 1.8 percent.

B. increase by 1.8 percent.

C. drop by 0.18 percent.

D. increase by 0.18 percent.

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.

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.

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:

A. increase by 5 percent.

B. increase by 20 percent.

C. decrease by 5 percent.

D. decrease by 20 percent.

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

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.

D. None of the statements is correct.

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?

A. 61,500

B. 61,300

C. 61,300 – 4PX

D. 61,500 – 4PX

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?

A. 61,500

B. 61,300

C. 61,300 – 4PX

D. 61,500 – 4PX

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?

A. -0.003

B. -0.03

C. -0.3

D. -3

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:

A. elastic.

B. inelastic.

C. unitary elastic.

D. neither elastic, inelastic, nor unitary elastic.

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:

A. 0.008.

B. -0.08.

C. -0.8.

D. -8.

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:

A. substitutes.

B. complements.

C. normal goods.

D. inferior goods.

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:

A. 0.008.

B. 0.082.

C. 0.82.

D. 8.2.

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:

A. an inferior good.

B. a normal good.

C. a Giffen good.

D. a regular good.

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?

A. Available substitutes

B. Supply of the good

C. Time

D. Expenditure share

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.

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.

D. None of the statements is correct.

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.

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.

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.

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:

A. -2.5.

B. 4.0.

C. -2.5 percent.

D. 4.0 percent.

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:

A. -2.5.

B. 4.0.

C. -2.5 percent.

D. 4.0 percent.

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:

A. 4.0.

B. 1.0.

C. 2.0.

D. -2.5.

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:

A. 4.0.

B. 1.0.

C. 0.0.

D. -2.5.

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.

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.

79. The lower the standard error:

A. the less confident the manager can be that the parameter estimates reflect the true values.

B. the more confident the manager can be that the parameter estimates reflect the true values.

C. the more precisely the parameter estimates the true values.

D. the less precisely the parameter estimates the true values.

80. The manager can be 95 percent confident that the true value of the underlying parameters in a regression is not zero if the absolute value of the t-statistic is:

A. less than 1.

B. less than 2.

C. greater than 1.

D. greater than 2.

81. When the own price elasticity of good X is -3.5, then total revenue can be increased by:

A. increasing the price.

B. decreasing the quantity supplied.

C. decreasing the price.

D. neither increasing the price, decreasing the price, nor decreasing the quantity supplied.

82. When the price of sugar was “low,” U.S. consumers spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures increased to $5 billion annually. This data indicates that:

A. the demand for sugar is inelastic.

B. the demand curve for sugar is upward sloping.

C. the quantity demanded of sugar increased.

D. the demand curve for sugar is upward sloping and the quantity demanded of sugar increased.

83. Which of the following statements is INCORRECT?

A. If a firm decreases the price of its product, its total revenue must decrease.

B. The own price elasticity of demand is constant at all points along a linear demand curve.

C. As the price of X falls and we move down an individual’s demand curve for X, the money income of the individual also changes.

D. None of the statements is correct.

84. The demand for which of the following commodities is likely to be most inelastic?

A. Soft drinks

B. Beverages

C. Cola drinks

D. Pepsi Cola

85. Each week Bill buys exactly 7 bottles of cola regardless of its price. Bill’s own price elasticity of demand for cola IN ABSOLUTE VALUE is:

A. greater than 1.

B. less than 1.

C. 1.

D. zero.

86. The price elasticity of demand is -2.0 for a certain firm’s product. If the firm raises price, the firm manager 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.

87. The management of Local Cinema has estimated the monthly demand for tickets to be ln Q = 22,328 – 0.41 ln P + 0.5 ln M – 0.33 ln A + 100 ln PDVD, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and PDVD = price of a DVD rental. It is known that P = $5.50, M = $9,000, A = $900, and PDVD = $3.00. Determine the own price elasticity of demand for movie tickets.

A. -0.29

B. -0.32

C. -0.39

D. -0.41

88. The management of Local Cinema has estimated the monthly demand for tickets to be ln Q = 22,328 – 0.41 ln P + 0.5 ln M – 0.33 ln A + 100 ln PDVD, where Q = quantity of tickets demanded, P = price per ticket, M = income, A = advertising outlay, and PDVD = price of a DVD rental. It is known that P = $5.50, M = $9,000, A = $900, and Pvcr = $3.00. Based on the information given, which of the following statements is false?

A. Advertising decreases the demand for movie tickets.

B. Movies are normal goods.

C. Movies are complements for DVD rentals.

D. The advertising elasticity of demand for movie tickets is -0.33.

89. When the price of sugar was “low,” U.S. consumers spent a total of $3 billion annually on sugar consumption. When the price doubled, consumer expenditures remained at $3 billion annually. This data indicates that:

A. the demand for sugar is inelastic.

B. the demand curve for sugar is upward sloping.

C. the quantity demanded of sugar increased.

D. None of the statements is correct.

90. The demand for good X is given by ln Qxd = 120 – 0.9 ln Px + 1.5 ln Py – 0.7 ln M. Which of the following statements is correct?

A. X has constant income elasticity.

B. An economic downturn will decrease demand for X.

C. A 15 percent increase in income would increase demand for X by 10.5 percent.

D. X has a constant income elasticity, and an economic downturn will decrease the demand for X.

91. The cross-price elasticity of demand between goods X and Y is -3.5. If the price of X decreases by 7 percent, the quantity demanded of Y will:

A. decrease by 24.5 percent.

B. decrease by 2.45 percent.

C. increase by 24.5 percent.

D. increase by 2.45 percent.

92. The short-run response of quantity demanded to a change in price is usually:

A. the same as the long-run response.

B. less than the long-run response.

C. greater than the long-run response.

D. None of the statements is correct.

93. The cross-price elasticity of demand for books and magazines is -2.0. If the price of magazines decreases by 10 percent, the quantity demanded of books will:

A. fall by 2.0 percent.

B. rise by 2.0 percent.

C. fall by 20 percent.

D. rise by 20 percent.

94. If the demand function for a particular good is Q = 25 – 10P, then the price elasticity of demand (in absolute value) at a price of $1 is:

A. 8.

B. 2.

C. 2/3.

D. 1/8.

95. The demand for video recorders has been estimated to be linear and given by the demand relation Qv = 145 – 3.2Pv + 7M – 0.95Pf – 39Pm, 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 M is income. Based on the estimated demand equation we can conclude:

A. video recorders are normal goods.

B. the demand for video recorders is inelastic.

C. video recorders are normal goods and the demand for video recorders is inelastic.

D. video recorders are normal goods and video recorder film is a complement for video recorders.

96. The elasticity of demand for gasoline has been estimated to be 2.0, and the standard error is 1.0. The upper and lower bounds on the 95 percent confidence interval for the elasticity of demand for gasoline are:

A. 3 and 2.

B. 2 and 1.

C. 3 and 1.

D. None of the statements is correct.

97. The cross-price elasticity of demand for textbooks and copies of old exams is -3.5. If the price of copies of old exams increases by 10 percent, the quantity demanded of textbooks will:

A. fall by 3.5 percent.

B. rise by 3.5 percent.

C. fall by 35 percent.

D. rise by 35 percent.

98. When the price of sugar was “low,” consumers in the United States spent a total of $3 billion annually on its consumption. When the price doubled, consumer expenditures actually INCREASED to $4 billion annually. This indicates that:

A. the demand for sugar is elastic.

B. the demand curve for sugar is upward sloping.

C. sugar is a Giffen good.

D. None of the statements is correct.

99. The demand for which of the following commodities is likely to be most price inelastic?

A. Food

B. Hamburgers

C. Big Macs

D. Sandwiches

100. If the demand function for a particular good is Q = 20 – 8P, then the price elasticity of demand (in absolute value) at a price of $1 is:

A. 8.

B. 2.

C. 2/3.

D. 1/8.

101. Assume that the price elasticity of demand is -0.75 for a certain firm’s product. If the firm lowers 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 decrease.

102. Suppose the demand for a product is Qxd = 12 – 3 ln Px. Then demand for product x is:

A. inelastic.

B. unitary elastic.

C. elastic.

D. It cannot be determined without more information.

103. The demand for good X has been estimated by Qxd = 6 – 2Px + 5Py. Suppose that good X sells at $3 per unit and good Y sells for $2 per unit. Calculate the own price elasticity.

A. -0.3

B. -0.4

C. -0.5

D. -0.6

104. The own price elasticity of demand for apples is -1.5. If the price of apples falls by 6 percent, what will happen to the quantity of apples demanded?

A. It will increase 4 percent.

B. It will increase 9 percent.

C. It will fall 4 percent.

D. It will fall 6 percent.

105. If quantity demanded for sneakers falls by 6 percent when price increases 20 percent, we know that the absolute value of the own price elasticity of sneakers is:

A. 0.3.

B. 0.7.

C. 2.3.

D. 3.3.

106. If the cross-price elasticity between ketchup and hamburgers is -2.5, a 2 percent increase in the price of ketchup will lead to a:

A. 5 percent drop in quantity demanded of ketchup.

B. 5 percent drop in quantity demanded of hamburgers.

C. 5 percent increase in quantity demanded of ketchup.

D. 5 percent increase in quantity demanded of hamburgers.

107. If the income elasticity for lobster is 0.6, a 25 percent increase in income will lead to a:

A. 6 percent drop in demand for lobster.

B. 2.4 percent increase in demand for lobster.

C. 15 percent increase in demand for lobster.

D. 42 percent increase in demand for lobster.

108. You are the manager of a popular hat company. You know that the advertising elasticity of demand for your product is 0.25. How much will you have to increase advertising in order to increase demand by 5 percent?

A. 0.05 percent

B. 20 percent

C. 25 percent

D. 1.25 percent

109. The statistical analysis of economic phenomena is defined as:

A. standard error.

B. confidence intervals.

C. the t-statistic.

D. econometrics.

110. Which of the following provides a measure of the overall fit of a regression?

A. t-statistic

B. F-statistic

C. P-value

D. The t-statistic and the P-value

111. As a general rule of thumb, a manager can be 95 percent confident that the true value of the underlying parameter in the regression is not zero, when the absolute value of the t-statistic is:

A. greater than zero.

B. greater than or equal to 1.

C. greater than or equal to 2.

D. None of the statements is correct.

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

A. demand is perfectly elastic.

B. the demand curve is vertical.

C. consumers do not respond at all to changes in price.

D. the demand curve is vertical and consumers do not respond at all to changes in price.

113. When a demand curve is linear:

A. demand is elastic at low prices.

B. demand is inelastic at low prices.

C. demand is unitary elastic at low prices.

D. the elasticity is constant at all prices.

114. The demand for Cinnamon Toast Crunch brand cereal is:

A. equally elastic to the demand for cereal in general.

B. less elastic than the demand for cereal in general.

C. more elastic than the demand for cereal in general.

D. None of the statements is correct.

115. Which of the following is a correct statement about the own price elasticity of demand?

A. Demand tends to be more inelastic in the short term than in the long term.

B. Demand tends to be more elastic as more substitutes are available.

C. Demand tends to be more inelastic for goods that comprise a smaller share of a consumer’s budget.

D. All of the statements are correct.

116. When marginal revenue is zero, demand will be:

A. elastic.

B. inelastic.

C. unit elastic.

D. There is not sufficient information to classify the elasticity of demand.

117. When marginal revenue is zero, total revenue:

A. will increase when price increases.

B. is maximized.

C. will decrease when price decreases.

D. will decrease as quantity decreases.

118. When marginal revenue is positive, demand is:

A. elastic.

B. inelastic.

C. unit elastic.

D. There is not sufficient information to classify the elasticity of demand.

119. When marginal revenue is negative, demand is:

A. elastic.

B. inelastic.

C. unit elastic.

D. There is not sufficient information to classify the elasticity of demand.

120. Suppose the equilibrium price in the market is $10 and the price elasticity of demand for the linear demand function at the market equilibrium is -1.25. Then we know that:

A. demand is inelastic.

B. marginal revenue is $2.

C. marginal revenue is $50.

D. demand is unit elastic.

121. Suppose that at the equilibrium price and quantity, the marginal revenue is -$15 and the price elasticity of demand for a linear demand function is -0.75. Then we know that the equilibrium price is:

A. -$5.

B. $45.

C. -$45.

D. $5.

122. Suppose the equilibrium price in the market is $100 and the marginal revenue associated with the linear (inverse) demand function is $50. Then we know that the own price elasticity of demand is:

A. -2.

B. 1.

C. 2.

D. It cannot be determined from the information contained in the question.

123. Suppose the equilibrium price in the market is $60 and the marginal revenue associated with the linear (inverse) demand function is $20. Then we know that the own price elasticity of demand is:

A. -2.

B. 2.

C. -1.5.

D. It cannot be determined from the information contained in the question.

124. A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is -4.0 and the cross-price elasticity of demand between Y and X is 2.0, then a 2 percent decrease in the price of X will:

A. increase total revenues from X and Y by $520.

B. decrease total revenues from X and Y by $200.

C. leave total revenues from X and Y unchanged.

D. decrease total revenues for X and Y by $600.

125. A firm derives revenue from two sources: goods X and Y. Annual revenues from good X and Y are $10,000 and $20,000, respectively. If the price elasticity of demand for good X is -2.0 and the cross-price elasticity of demand between Y and X is 1.5, then a 4 percent increase in the price of X will:

A. increase total revenues from X and Y by $800.

B. increase total revenues from X and Y by $8,000.

C. decrease total revenues from X and Y by $400.

D. increase total revenues from X and Y by $400.

126.

The demand function in Table 3-1 is QXd = 100 – 2PX. Based on this information, when QX = 80, the price, PX (point A), is:

A. $5.

B. $10.

C. $15.

D. $20.

127.

The demand function in Table 3-1 is QXd = 100 – 2PX. Based on this information, when PX = $30, quantity demand, QXd (point B), is:

A. 100.

B. 80.

C. 60.

D. 40.

128.

The demand function in Table 3-1 is QXd = 100 – 2PX. Based on this information, compute the own price elasticity of demand when PX = $25 (point C).

A. -1.09

B. -1

C. -0.50

D. -0.25

129.

The demand function in Table 3-1 is QXd = 100 – 2PX. Based on this information, compute the total revenue when QX = 20 (point D).

A. $750

B. $800

C. $850

D. $900

130.

Use the regression output to compute the R-square and adjusted R-square (points A and B, respectively).

A. 0.056 and 0.017

B. 0.944 and 0.942

C. 0.944 and -0.428

D. 0.06 and 0.02

131.

The residual sum of squares and degrees of freedom due to the regression are:

A. 44,539.54 and 2, respectively.

B. 747,851.57, and 98, respectively.

C. 1,540,242.68 and 48, respectively.

D. There is not sufficient information to answer this question.

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