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MGE302 ch.4

question
higher than
answer
The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product.
question
Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
answer
Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
question
Curves (2) and (3) have constant price elasticity.
answer
Which of the following is true of the demand curves shown below?
question
The ARC-elasticity (midpoints formula) of demand is ½ or .50.
answer
FarAwayDrive Inc. has recently increased the price from $4 to $6. In response to this increase in price, sales decreased from 2,200 to 1,800 units. If no other information concerning the demand is available, which of the following is true about the sensitivity of demand (using the ARC or midpoints formula) for FarAwayDrive's golf balls?
question
Pyrotex will increase its revenues by decreasing the price of fireworks.
answer
Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
question
Pt increases by 1 percent, Qdt will decrease by 5 percent.
answer
Edt = - 5. This means that if
question
the price of the product.
answer
Price elasticity is defined as the change in quantity demanded relative to a change in
question
horizontal, Ed = infinity.
answer
The shape of a perfectly elastic demand curve is
question
vertical, Ed = 0.
answer
The shape of a perfectly inelastic demand curve is
question
Ed > 1.
answer
If the demand for movie tickets is elastic, then
question
elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
answer
Let Edt= -2. This implies that the demand for movie tickets is
question
one.
answer
At the midpoint of a linear demand curve, the elasticity of demand is
question
skin care products are normal goods.
answer
Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then
question
products A and B are substitutes.
answer
If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then
question
the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
answer
Sales of shampoo by CleanHair, Inc., have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that
question
the quantity of fast food consumed decreases as income increases.
answer
Fast food is believed to be an inferior good. This means that
question
An increase in the price of snowboards
answer
Assume D1 represents the current demand curve for skis. Which of the following would most likely cause D1 to shift to D2?
question
SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1.
answer
Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 -25P + 4I +10PA-15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?
question
The demand facing individual firms tend to be more price-elastic than those for the entire industry.
answer
Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?
question
growth
answer
BaseBall Inc. is a leader in the industry for baseball bats. If new firms enter the industry and BaseBall Inc. experiences a fall in market share, we can say that the product of the company is in the ______ phase.
question
There is no uniform result as the demand will differ, depending on whether customers anticipate that a price change is permanent or temporary.
answer
Which of the following is a limitation of demand estimation through price experimentation?
question
excluded variables are correlated with explanatory variables that are included in the analysis.
answer
The omitted-variable problem in statistical analysis occurs when
question
Determinants of Price Elasticity of Demand
answer
availability of close substitutes, size of good in customer budget, time horizon of customer adjustment
question
substitutes
answer
two goods for which an increase in the price of one leads to an increase in the demand for the other
question
compliments
answer
two goods for which an increase in the price of one leads to a decrease in the demand for the other
question
network effects
answer
the value of a product or service for an individual user increases with the number of total users
question
Product Life Cycle
answer
introduction, growth, maturity, decline
question
Demand Estimation Techniques
answer
Interviews, price experimentation, statistical analysis
1 of 28
question
higher than
answer
The long-run price elasticity of demand for a product is generally ______ the short-run elasticity for the same product.
question
Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
answer
Assume that Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
question
Curves (2) and (3) have constant price elasticity.
answer
Which of the following is true of the demand curves shown below?
question
The ARC-elasticity (midpoints formula) of demand is ½ or .50.
answer
FarAwayDrive Inc. has recently increased the price from $4 to $6. In response to this increase in price, sales decreased from 2,200 to 1,800 units. If no other information concerning the demand is available, which of the following is true about the sensitivity of demand (using the ARC or midpoints formula) for FarAwayDrive's golf balls?
question
Pyrotex will increase its revenues by decreasing the price of fireworks.
answer
Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
question
Pt increases by 1 percent, Qdt will decrease by 5 percent.
answer
Edt = - 5. This means that if
question
the price of the product.
answer
Price elasticity is defined as the change in quantity demanded relative to a change in
question
horizontal, Ed = infinity.
answer
The shape of a perfectly elastic demand curve is
question
vertical, Ed = 0.
answer
The shape of a perfectly inelastic demand curve is
question
Ed > 1.
answer
If the demand for movie tickets is elastic, then
question
elastic, because a 1 percent change in Pt changes Qdt by 2 percent.
answer
Let Edt= -2. This implies that the demand for movie tickets is
question
one.
answer
At the midpoint of a linear demand curve, the elasticity of demand is
question
skin care products are normal goods.
answer
Assume the demand function for skin care products is given by Q = 1,000 - 20 P + 5I. If P=$25 and I=$1,000 currently, then
question
products A and B are substitutes.
answer
If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then
question
the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
answer
Sales of shampoo by CleanHair, Inc., have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that
question
the quantity of fast food consumed decreases as income increases.
answer
Fast food is believed to be an inferior good. This means that
question
An increase in the price of snowboards
answer
Assume D1 represents the current demand curve for skis. Which of the following would most likely cause D1 to shift to D2?
question
SeatComfy's chairs are normal goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units as price increases by $1.
answer
Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 -25P + 4I +10PA-15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true?
question
The demand facing individual firms tend to be more price-elastic than those for the entire industry.
answer
Which of the following describes the difference between the demand faced by a firm and the demand faced by an industry?
question
growth
answer
BaseBall Inc. is a leader in the industry for baseball bats. If new firms enter the industry and BaseBall Inc. experiences a fall in market share, we can say that the product of the company is in the ______ phase.
question
There is no uniform result as the demand will differ, depending on whether customers anticipate that a price change is permanent or temporary.
answer
Which of the following is a limitation of demand estimation through price experimentation?
question
excluded variables are correlated with explanatory variables that are included in the analysis.
answer
The omitted-variable problem in statistical analysis occurs when
question
Determinants of Price Elasticity of Demand
answer
availability of close substitutes, size of good in customer budget, time horizon of customer adjustment
question
substitutes
answer
two goods for which an increase in the price of one leads to an increase in the demand for the other
question
compliments
answer
two goods for which an increase in the price of one leads to a decrease in the demand for the other
question
network effects
answer
the value of a product or service for an individual user increases with the number of total users
question
Product Life Cycle
answer
introduction, growth, maturity, decline
question
Demand Estimation Techniques
answer
Interviews, price experimentation, statistical analysis
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