Test Bank for Managerial Economics:
Foundations of Business Analysis and
Strategy, 14th Edition by Thomas
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. - answer-a. 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 - answer-e. raise the price
In this problem, demonstrate your knowledge of percentage rates of change of an entire
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, 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%. - answer-e. 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 - answer-b. 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.}
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Foundations of Business Analysis and
Strategy, 14th Edition by Thomas
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. - answer-a. 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 - answer-e. raise the price
In this problem, demonstrate your knowledge of percentage rates of change of an entire
1
, 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%. - answer-e. 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 - answer-b. 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.}
2
