Test Bank for Managerial
Economics, 10th Edition
Suppose we estimate that the demand elasticity for fine leather jackets is -.7 at their current prices.
Then we know that:
a. a 1% increase in price reduces quantity sold by .7%.
b. no one wants to buy leather jackets.
c. demand for leather jackets is elastic.
d. a cut in the prices will increase total revenue.
e. leather jackets are luxury items. - ANSWERSa. a 1% increase in price reduces quantity sold by .7%.
If demand were inelastic, then we should immediately:
a. cut the price.
b. keep the price where it is.
c. go to the Nobel Prize Committee to show we were the first to find an upward sloping demand
curve.
d. stop selling it since it is inelastic.
e. raise the price - ANSWERSe. raise the price
In this problem, demonstrate your knowledge of percentage rates of change of an entire demand
function (HINT: %ΔQ = EP•%ΔP + EY•%ΔY). You have found that the price elasticity of motor control
devices at AllenBradley Corporation is -2, and that the income elasticity is a +1.5. You have been
asked to predict sales of these devices for one year into the future. Economists from the Conference
Board predict that income will be rising 3% over the next year, and AB's management is planning to
raise prices 2%. You expect that the number of AB motor control devices sold in one year will:
a. fall .5%.
b. not change.
c. rise 1%.
d. rise 2%.
e. rise .5%. - ANSWERSe. rise .5%.
, A linear demand for lake front cabins on a nearby lake is estimated to be: QD = 900,000 - 2P. What is
the point price elasticity for lake front cabins at a price of P = $300,000? [HINT: Ep = (∂Q/∂P)(P/Q)]
a. EP = -3.0
b. EP = -2.0
c. EP = -1.0
d. EP = -0.5
e. EP = 0 - ANSWERSb. EP = -2.0
Property taxes are the product of the tax rate (T) and the assessed value (V). The total property tax
collected in your city (P) is: P = T•V. If the value of properties rise 4% and if Mayor and City Council
reduces the property the tax rate by 2%, what happens to the total amount of property tax
collected? [HINT: the percentage rate of change of a product is approximately the sum of the
percentage rates of change.}
a. It rises 6 %.
b. It rises 4 %.
c. It rises 3 %.
d. It rises 2 %
e. If falls 2% - ANSWERSd. It rises 2 %
Which of the following would tend to make demand INELASTIC?
a. the amount of time analyzed is quite long
b. there are lots of substitutes available
c. the product is highly durable
d. the proportion of the budget spent on the item is very small
e. no one really wants the product at all - ANSWERSd. the proportion of the budget spent on the
item is very small
Identify the reasons why the quantity demanded of a product increases as the price of that product
decreases.
Economics, 10th Edition
Suppose we estimate that the demand elasticity for fine leather jackets is -.7 at their current prices.
Then we know that:
a. a 1% increase in price reduces quantity sold by .7%.
b. no one wants to buy leather jackets.
c. demand for leather jackets is elastic.
d. a cut in the prices will increase total revenue.
e. leather jackets are luxury items. - ANSWERSa. a 1% increase in price reduces quantity sold by .7%.
If demand were inelastic, then we should immediately:
a. cut the price.
b. keep the price where it is.
c. go to the Nobel Prize Committee to show we were the first to find an upward sloping demand
curve.
d. stop selling it since it is inelastic.
e. raise the price - ANSWERSe. raise the price
In this problem, demonstrate your knowledge of percentage rates of change of an entire demand
function (HINT: %ΔQ = EP•%ΔP + EY•%ΔY). You have found that the price elasticity of motor control
devices at AllenBradley Corporation is -2, and that the income elasticity is a +1.5. You have been
asked to predict sales of these devices for one year into the future. Economists from the Conference
Board predict that income will be rising 3% over the next year, and AB's management is planning to
raise prices 2%. You expect that the number of AB motor control devices sold in one year will:
a. fall .5%.
b. not change.
c. rise 1%.
d. rise 2%.
e. rise .5%. - ANSWERSe. rise .5%.
, A linear demand for lake front cabins on a nearby lake is estimated to be: QD = 900,000 - 2P. What is
the point price elasticity for lake front cabins at a price of P = $300,000? [HINT: Ep = (∂Q/∂P)(P/Q)]
a. EP = -3.0
b. EP = -2.0
c. EP = -1.0
d. EP = -0.5
e. EP = 0 - ANSWERSb. EP = -2.0
Property taxes are the product of the tax rate (T) and the assessed value (V). The total property tax
collected in your city (P) is: P = T•V. If the value of properties rise 4% and if Mayor and City Council
reduces the property the tax rate by 2%, what happens to the total amount of property tax
collected? [HINT: the percentage rate of change of a product is approximately the sum of the
percentage rates of change.}
a. It rises 6 %.
b. It rises 4 %.
c. It rises 3 %.
d. It rises 2 %
e. If falls 2% - ANSWERSd. It rises 2 %
Which of the following would tend to make demand INELASTIC?
a. the amount of time analyzed is quite long
b. there are lots of substitutes available
c. the product is highly durable
d. the proportion of the budget spent on the item is very small
e. no one really wants the product at all - ANSWERSd. the proportion of the budget spent on the
item is very small
Identify the reasons why the quantity demanded of a product increases as the price of that product
decreases.
