LSUS MBA 701 Exam 2 Questions and Correct Answers
1. Demand equations derived from actual market data are:
a. empirical demand functions.
b. never estimated using consumer interviews.
c. generally estimated using regression analysis.
d. both a and c.
e. all of the above.
Answer: e. all of the above.
Rationale: Empirical demand functions use real data, often via regression; consumer
interviews can provide data but are not the only method.
2. A representative sample:
a. eliminates the problem of response bias.
b. reflects the characteristics of the population.
c. is frequently a random sample.
d. both b and c.
e. all of the above.
Answer: d. both b and c.
Rationale: Representativeness ensures population mirroring, often via random sampling;
response bias is separate.
3. The estimated demand for a good is Q = 2,500 - 4P + 0.125M + 3PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The coefficient on P:
a. does not have the expected sign.
b. is negative as expected.
, c. should have the same sign as the coefficient on PR.
d. should not be greater than one (in absolute value).
e. both b and d.
Answer: b. is negative as expected.
Rationale: Aligns with the law of demand showing inverse price-quantity relationship.
4. The estimated demand for a good is Q = 2,500 - 4P + 0.125M + 3PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The good is:
a. an inferior good since the coefficient on PR is positive.
b. a normal good since the coefficient on PR is positive.
c. an inferior good since the coefficient on M is greater than one.
d. a normal good since the coefficient on M is positive.
e. none of the above.
Answer: d. a normal good since the coefficient on M is positive.
Rationale: Positive income coefficient indicates demand rises with income.
5. The estimated demand for a good is Q = 2,500 - 4P + 0.125M + 3PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. If income increases by 80 units while all else remains constant, quantity demanded will:
a. increase; 10 units.
b. increase; 20 units.
c. increase; 50 units.
d. increase; 48 units.
e. decrease; 12 units.
Answer: a. increase; 10 units.
Rationale: Coefficient on M is 0.125; 0.125 × 80 = 10 unit increase.
, 6. The estimated demand for a good is Q = 4,800 − 16P − 0.65M − 1.5PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The coefficient on P:
a. violates the law of demand.
b. is negative as dictated by the law of demand.
c. should not be greater than one (in absolute value).
d. should have the same sign as the coefficient on PR.
e. both c and d.
Answer: b. is negative as dictated by the law of demand.
Rationale: Negative price coefficient confirms inverse relationship.
7. The estimated demand for a good is Q = 4,800 − 16P − 0.65M − 1.5PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The good is:
a. an inferior good since the coefficient on PR is negative.
b. a normal good since the coefficient on PR is negative.
c. a normal good since the coefficient on M is greater than one (in absolute value).
d. an inferior good since the coefficient on M is negative.
e. none of the above.
Answer: d. an inferior good since the coefficient on M is negative.
Rationale: Negative income coefficient means demand falls as income rises.
8. The estimated demand for a good is Q = 4,800 − 16P − 0.65M − 1.5PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. This good and good R are:
a. complements since the coefficient on M is negative.
b. substitutes since the coefficient on M is negative.
1. Demand equations derived from actual market data are:
a. empirical demand functions.
b. never estimated using consumer interviews.
c. generally estimated using regression analysis.
d. both a and c.
e. all of the above.
Answer: e. all of the above.
Rationale: Empirical demand functions use real data, often via regression; consumer
interviews can provide data but are not the only method.
2. A representative sample:
a. eliminates the problem of response bias.
b. reflects the characteristics of the population.
c. is frequently a random sample.
d. both b and c.
e. all of the above.
Answer: d. both b and c.
Rationale: Representativeness ensures population mirroring, often via random sampling;
response bias is separate.
3. The estimated demand for a good is Q = 2,500 - 4P + 0.125M + 3PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The coefficient on P:
a. does not have the expected sign.
b. is negative as expected.
, c. should have the same sign as the coefficient on PR.
d. should not be greater than one (in absolute value).
e. both b and d.
Answer: b. is negative as expected.
Rationale: Aligns with the law of demand showing inverse price-quantity relationship.
4. The estimated demand for a good is Q = 2,500 - 4P + 0.125M + 3PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The good is:
a. an inferior good since the coefficient on PR is positive.
b. a normal good since the coefficient on PR is positive.
c. an inferior good since the coefficient on M is greater than one.
d. a normal good since the coefficient on M is positive.
e. none of the above.
Answer: d. a normal good since the coefficient on M is positive.
Rationale: Positive income coefficient indicates demand rises with income.
5. The estimated demand for a good is Q = 2,500 - 4P + 0.125M + 3PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. If income increases by 80 units while all else remains constant, quantity demanded will:
a. increase; 10 units.
b. increase; 20 units.
c. increase; 50 units.
d. increase; 48 units.
e. decrease; 12 units.
Answer: a. increase; 10 units.
Rationale: Coefficient on M is 0.125; 0.125 × 80 = 10 unit increase.
, 6. The estimated demand for a good is Q = 4,800 − 16P − 0.65M − 1.5PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The coefficient on P:
a. violates the law of demand.
b. is negative as dictated by the law of demand.
c. should not be greater than one (in absolute value).
d. should have the same sign as the coefficient on PR.
e. both c and d.
Answer: b. is negative as dictated by the law of demand.
Rationale: Negative price coefficient confirms inverse relationship.
7. The estimated demand for a good is Q = 4,800 − 16P − 0.65M − 1.5PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. The good is:
a. an inferior good since the coefficient on PR is negative.
b. a normal good since the coefficient on PR is negative.
c. a normal good since the coefficient on M is greater than one (in absolute value).
d. an inferior good since the coefficient on M is negative.
e. none of the above.
Answer: d. an inferior good since the coefficient on M is negative.
Rationale: Negative income coefficient means demand falls as income rises.
8. The estimated demand for a good is Q = 4,800 − 16P − 0.65M − 1.5PR where Q is the quantity
demanded of the good, P is the price of the good, M is income, and PR is the price of related
good R. This good and good R are:
a. complements since the coefficient on M is negative.
b. substitutes since the coefficient on M is negative.
