Managerial Economics & Business Strategy Michael Baye 9th Edition- Test Bank Chapter 03 Quantitative Demand Analysis

Prepare for your Managerial Economics exams with this Chapter 3 Test Bank from Michael Baye 9th Edition. Includes multiple choice questions and answers on Quantitative Demand Analysis, covering price elasticity, demand functions, and more. Perfect for students seeking a comprehensive study aid for practice and review. Managerial Economics & Business Strategy Michael Baye 9th Edition- Test Bank Chapter 03 Quantitative 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. Answer: A Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: C Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: B Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-1 4. If the demand for a product is Q d = 10 − ln P then product x is: A. elastic. B. inelastic. C. unitary elastic. D. Cannot be determined without more information. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 5. The demand for good X has been estimated by Q d = 12 − 3P + 4P . 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 Answer: D Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 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. Answer: D Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-2 , in whole or part. 7. If apples have an own price elasticity of −1.2 we know the demand is: A. unitary. B. indeterminate. C. elastic. D. inelastic. Answer: C Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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. Answer: D Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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 preceding statements is correct. 3-3 , in whole or part. Answer: A Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 1 Easy 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 Answer: B Learning Objective: 03-05 Topic: The Elasticity Concept Blooms: Remember AACSB: Knowledge Application Difficulty: 3 Hard 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. Answer: C Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 1 Easy 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. Answer: C Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Remember 3-4 , in whole or part. AACSB: Knowledge Application Difficulty: 1 Easy 14. Suppose Q d = 10,000 − 2 P + 3 P − 4.5M, where P = $100, P = $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 Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 15. Suppose Q d = 10,000 − 2 P + 3 P − 4.5M, where P = $100, P = $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. Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 16. Suppose Q d = 10,000 − 2 P + 3 P − 4.5M, where P = $100, P = $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 Answer: D Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-5 , in whole or part. 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 Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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 preceding statements is correct. Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand 3-6 , in whole or part. Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: D Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 3-7 , in whole or part. 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. Answer: B Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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 Answer: D Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 26. Suppose the demand function is Q d = 100 − 8P + 6P – M. If P = $4, P = $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 Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-8 , in whole or part. 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. Answer: A Learning Objective: 03-01 Topic: Income Elasticity Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: C Learning Objective: 03-01 Topic: Income Elasticity Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-01 Topic: Income Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-9 , in whole or part. 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. Answer: A Learning Objective: 03-01 Topic: Income Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 31. Suppose demand is given by Q d = 50 − 4P + 6P + A , where P = $4, P = $2, and A = $50. What is the advertising elasticity of demand for good x? A. 1.12 B. 0.38 C. 1.92 D. 0.52 Answer: D Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 32. Suppose demand is given by Q d = 50 − 4P + 6P + A , where P = $4, P = $2, and A = $50. What is the quantity demanded of good x? A. 96 B. 50 C. 46 D. 72 Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-10 , in whole or part. 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 Answer: C Learning Objective: 03-01 Topic: Other Elasticities Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 34. Suppose the demand for good x is ln Q d = 21 − 0.8 ln P − 1.6 ln P + 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. Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 35. Suppose the demand for good x is ln Q d = 21 − 0.8 ln P − 1.6 ln P + 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. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-11 , in whole or part. 36. Suppose the demand for good x is ln Q d = 21 − 0.8 ln P − 1.6 ln P + 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. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 37. Suppose the demand function is given by Q d = 8P 0.5 P 0.25 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. Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 38. Suppose the demand function is given by Q d = 8P 0.5 P 0.25 M0.12 H. Then good x is: A. a normal good. B. an inferior good. C. a complement for good y. D. perfectly inelastic. Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 3-12 , in whole or part. 39. Suppose the demand function is given by Q d = 8P 0.5 P 0.25 M0.12 H. Then the demand for good x is: A. inelastic. B. unitary. C. elastic. D. perfectly elastic. Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 40. The statistical analysis of economic phenomena is defined as: A. econometrics. B. variance. C. confidence intervals. D. standard deviation. Answer: A Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-13 , in whole or part. 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 Answer: A Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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 Answer: D Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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 Answer: B Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 02 Medium 3-14 , in whole or part. 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 Answer: C Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: D Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: D Learning Objective: 03-06 Topic: Regression Analysis Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard 3-15 , in whole or part. 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. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-01 Topic: The Elasticity Concept Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: A Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 3-16 , in whole or part. 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. Answer: C Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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 Answer: A Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: B Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-17 , in whole or part. 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 preceding statements is correct. Answer: C Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 55. The demand for good X is estimated to be Q d = 10,000 − 4P + 5P + 2M + A where P 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 Answer: D Learning Objective: 03-05 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 56. The demand for good X is estimated to be Q d = 10,000 − 4P + 5P + 2M + A where P 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 Answer: B Learning Objective: 03-05 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-18 , in whole or part. 57. The demand for good X is estimated to be Q d = 10,000 − 4P + 5P + 2M + A where P 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 Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 58. The demand for good X is estimated to be Q d = 10, 000 − 4P + 5P + 2M + A where P 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. Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 59. The demand for good X is estimated to be Q d = 10, 000 − 4P + 5P + 2M + A where P 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. Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-19 , in whole or part. 60. The demand for good X is estimated to be Q d = 10,000 − 4P + 5P + 2M + A where P 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. Answer: A Learning Objective: 03-05 Topic: Cross-Price Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 61. The demand for good X is estimated to be Q d = 10, 000 − 4P + 5P + 2M + A where P 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. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 62. The demand for good X is estimated to be Q d = 10, 000 − 4P + 5P + 2M + A where P 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. Answer: B Learning Objective: 03-05 Topic: Income Elasticity Blooms: Apply 3-20 , in whole or part. AACSB: Analytical Thinking Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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 Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-21 , in whole or part. 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. Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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 preceding statements is correct. Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-22 , in whole or part. 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. Answer: C Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard 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. Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: C Learning Objective: 03-01 Topic: Income Elasticity Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-23 , in whole or part. 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. Answer: B Learning Objective: 03-01 Topic: Income Elasticity Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy 73. The demand for good X has been estimated to be ln Q d = 100 − 2.5 ln P + 4 ln P + ln M. The own price elasticity of good X is: A. −2.5. B. 4.0. C. −2.5 percent. D. 4.0 percent. Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 74. The demand for good X has been estimated to be ln Q d = 100 − 2.5 ln P + 4 ln P + 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. Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-24 , in whole or part. 75. The demand for good X has been estimated to be ln Q d = 100 − 2.5 ln P + 4 ln P + ln M. The income elasticity of good X is: A. 4.0. B. 1.0. C. 2.0. D. −2.5. Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 76. The demand for good X has been estimated to be ln Q d = 100 − 2.5 ln P + 4 ln P + ln M. The advertising elasticity of good X is: A. 4.0. B. 1.0. C. 0.0. D. −2.5. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 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. Answer: B Learning Objective: 03-06 Topic: Regression Analysis Blooms: Understand AACSB: Knowledge Application Difficulty: 1 Easy 3-25 , in whole or part. 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. Answer: C Learning Objective: 03-06 Topic: Regression Analysis Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard 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. Answer: B Learning Objective: 03-06 Topic: Regression Analysis Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: D Learning Objective: 03-06 Topic: Regression Analysis Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-26 , in whole or part. 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. Answer: C Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-27 , in whole or part. 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 preceding statements is correct. Answer: D Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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 Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: D Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard 3-28 , in whole or part. 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. Answer: A Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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 Answer: D Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 3-29 , in whole or part. 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 preceding statements is correct. Answer: D Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 90. The demand for good X is given by ln Q d = 120 − 0.9 ln P + 1.5 ln P − 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. Answer: A Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: C Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-30 , in whole or part. 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 preceding statements is correct. Answer: B Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: D Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-31 , in whole or part. 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. Answer: D Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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 preceding statements is correct. Answer: D Learning Objective: 03-06 Topic: Regression Analysis Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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. Answer: C Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-32 , in whole or part. 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 preceding statements is correct. Answer: D Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard 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 Answer: A Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-33 , in whole or part. 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. Answer: A Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 102. Suppose the demand for a product is Q d = 12 − 3 ln P Then demand for product x is: A. inelastic. B. unitary elastic. C. elastic. D. It cannot be determined without more information. Answer: C Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analyze Difficulty: 01 Easy 103. The demand for good X has been estimated by Q d = 6 − 2P + 5P . 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 Answer: D Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analyze Difficulty: 02 Medium 3-34 , in whole or part. 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. Answer: B Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analyze Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analyze Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Apply AACSB: Analyze Difficulty: 02 Medium 3-35 , in whole or part. 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. Answer: C Learning Objective: 03-01 Topic: Income Elasticity Blooms: Apply AACSB: Analyze Difficulty: 02 Medium 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 Answer: B Learning Objective: 03-01 Topic: Other Elasticities Blooms: Apply AACSB: Analyze Difficulty: 02 Medium 109. The statistical analysis of economic phenomena is defined as: A. standard error. B. confidence intervals. C. the t-statistic. D. econometrics. Answer: D Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 3-36 , in whole or part. 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 Answer: B Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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 preceding statements is correct. Answer: C Learning Objective: 03-06 Topic: Regression Analysis Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: A Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 3-37 , in whole or part. 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. Answer: B Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 03 Hard 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 preceding statements is correct. Answer: C Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: D Learning Objective: 03-03 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 3-38 , in whole or part. 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. Answer: C Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-04 Topic: Own Price Elasticity of Demand 3-39 , in whole or part. Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 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. Answer: B Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 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. Answer: B Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 3-40 , in whole or part. 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. Answer: C Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 03 Hard 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. Answer: B Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 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. Answer: A Learning Objective: 03-04 Topic: Own Price Elasticity of Demand Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-41 , in whole or part. 126. The demand function in the accompanying table is Q d = 100 − 2P . Based on this information, when QX = 80, the price, PX (point A), is: Price of Quantity Good X of Good X (PX) (QX) Own Price Elasticity Total Revenue 0 100 0.00 0 5 90 −0.11 450 A 80 −0.25 800 15 70 −0.43 1050 20 60 −0.67 1200 25 50 C 1250 30 B −1.50 1200 35 30 −2.33 1050 40 20 −4.00 D 45 10 −9.00 450 50 0 -∞ 0 A. $5. B. $10. C. $15. D. $20. Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 127. The demand function in the accompanying table is Q d = 100 − 2P . Based on this information, when PX = $30, quantity demand, Q d (point B), is: Price of Quantity Good X of Good X (PX) (QX) Own Price Elasticity Total Revenue 0 100 0.00 0 5 90 −0.11 450 A 80 −0.25 800 15 70 −0.43 1050 20 60 −0.67 1200 25 50 C 1250 30 B −1.50 1200 35 30 −2.33 1050 40 20 −4.00 D 45 10 −9.00 450 50 0 -∞ 0 3-42 , in whole or part. A. 100. B. 80. C. 60. D. 40. Answer: D Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 128. The demand function in the accompanying table is Q d = 100 − 2P . Based on this information, compute the own price elasticity of demand when PX = $25 (point C). Price of Quantity Good X of Good X (PX) (QX) Own Price Elasticity Total Revenue 0 100 0.00 0 5 90 −0.11 450 A 80 −0.25 800 15 70 −0.43 1050 20 60 −0.67 1200 25 50 C 1250 30 B −1.50 1200 35 30 −2.33 1050 40 20 −4.00 D 45 10 −9.00 450 50 0 -∞ 0 A. −1.09 B. −1 C. −0.50 D. −0.25 Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 02 Medium 3-43 , in whole or part. 129. The demand function in the accompanying table is Q d = 100 − 2P . Based on this information, compute the total revenue when QX = 20 (point D). Price of Quantity Good X of Good X (PX) (QX) Own Price Elasticity Total Revenue 0 100 0.00 0 5 90 −0.11 450 A 80 −0.25 800 15 70 −0.43 1050 20 60 −0.67 1200 25 50 C 1250 30 B −1.50 1200 35 30 −2.33 1050 40 20 −4.00 D 45 10 −9.00 450 50 0 -∞ 0 A. $750 B. $800 C. $850 D. $900 Answer: B Learning Objective: 03-05 Topic: Obtaining Elasticities From Demand Functions Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-44 , in whole or part. 130. Use the regression output to compute the R-square and adjusted R-square (points A and B, respectively). SUMMARY OUTPUT Regression Statistics Multiple R 0.971 R-Square A Adjusted R-Square B Standard Error 30.462 Observations 51 ANOVA df SS MS F Significance F Regression C 747851.57 373925.79 402.98 9.89E-31 Residual 48 D 927.91 Total 50 792391.11 Coefficient s Standard Error t Stat P-value Lower 95% Upper 95% Intercept E 62.13 26.79 1.60E-30 1539.66 1789.51 Price of Roses −6.68 F −1.41 1.64E-01 −16.16 2.81 Disposable Income 9.73 0.34 G 1.23E-31 9.04 10.42 (M) A. 0.056 and 0.017 B. 0.944 and 0.942 C. 0.944 and −0.428 D. 0.06 and 0.02 Answer: B Learning Objective: 03-06 Topic: Regression Analysis Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-45 , in whole or part. 131. The residual sum of squares and degrees of freedom due to the regression are: SUMMARY OUTPUT Regression Statistics Multiple R 0.971 R-Square A Adjusted R-Square B Standard Error 30.462 Observations 51 ANOVA df SS MS F Significance F Regression C 747851.57 373925.79 402.98 9.89E-31 Residual 48 D 927.91 Total 50 792391.11 Coefficient s Standard Error t Stat P-value Lower 95% Upper 95% Intercept E 62.13 26.79 1.60E-30 1539.66 1789.51 Price of Roses −6.68 F −1.41 1.64E-01 −16.16 2.81 Disposable Income 9.73 0.34 G 1.23E-31 9.04 10.42 (M) 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. Answer: A Learning Objective: 03-06 Topic: Regression Analysis Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-46 , in whole or part. 132. Determine the intercept coefficient (point E) and whether that estimate is statistically significant at the 5 percent level. SUMMARY OUTPUT Regression Statistics Multiple R 0.971 R-Square A Adjusted R-Square B Standard Error 30.462 Observations 51 ANOVA df SS MS F Significance F Regression C 747851.57 373925.79 402.98 9.89E-31 Residual 48 D 927.91 Total 50 792391.11 Coefficient s Standard Error t Stat P-value Lower 95% Upper 95% Intercept E 62.13 26.79 1.60E-30 1539.66 1789.51 Price of Roses −6.68 F −1.41 1.64E-01 −16.16 2.81 Disposable Income 9.73 0.34 G 1.23E-31 9.04 10.42 (M) A. 1,664.46 and statistically significant since the P-value is less than 5 percent. B. 2.32 and statistically significant since the t-statistic is greater than 2 in absolute value. C. 1,664.46 and statistically insignificant since the P-value is less than 5 percent. D. 2.32 and statistically insignificant since the t-statistic is less than 2 in absolute value. Answer: A Learning Objective: 03-06 Topic: Regression Analysis Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-47 , in whole or part. 133. Determine the standard error of the estimated slope coefficient for the price of roses (point F) and whether that estimated slope coefficient is statistically significant at the 5 percent level. SUMMARY OUTPUT Regression Statistics Multiple R 0.971 R-Square A Adjusted R-Square B Standard Error 30.462 Observations 51 ANOVA df SS MS F Significance F Regression C 747851.57 373925.79 402.98 9.89E-31 Residual 48 D 927.91 Total 50 792391.11 Coefficient s Standard Error t Stat P-value Lower 95% Upper 95% Intercept E 62.13 26.79 1.60E-30 1539.66 1789.51 Price of Roses −6.68 F −1.41 1.64E-01 −16.16 2.81 Disposable Income 9.73 0.34 G 1.23E-31 9.04 10.42 (M) A. 9.42 and statistically significant since the t-statistic is greater than 2 in absolute value. B. 9.42 and statistically insignificant since the t-statistic is less than 2 in absolute value. C. 4.74 and statistically insignificant since the P-value is greater than 5 percent. D. 4.74 and statistically significant since the P-value is greater than 5 percent. Answer: C Learning Objective: 03-06 Topic: Regression Analysis Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-48 , in whole or part. 134. Determine the t-statistic of the estimated slope coefficient for disposable income (point G) and whether that estimated slope coefficient is statistically significant at the 5 percent level. SUMMARY OUTPUT Regression Statistics Multiple R 0.971 R-Square A Adjusted R-Square B Standard Error 30.462 Observations 51 ANOVA df SS MS F Significance F Regression C 747851.57 373925.79 402.98 9.89E-31 Residual 48 D 927.91 Total 50 792391.11 Coefficient s Standard Error t Stat P-value Lower 95% Upper 95% Intercept E 62.13 26.79 1.60E-30 1539.66 1789.51 Price of Roses −6.68 F −1.41 1.64E-01 −16.16 2.81 Disposable Income 9.73 0.34 G 1.23E-31 9.04 10.42 (M) A. 3.31 and statistically significant since the t-statistic is greater than 2 in absolute value. B. 0.03 and statistically insignificant since the t-statistic is less than 2 in absolute value. C. 3.31 and statistically insignificant since the P-value is less than 5 percent. D. 28.62 and statistically significant since the P-value is less than 5 percent. Answer: D Learning Objective: 03-06 Topic: Regression Analysis Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 3-49 , in whole or part. 135. From the regression output, the predicted regression line is: SUMMARY OUTPUT Regression Statistics Multiple R 0.971 R-Square A Adjusted R-Square B Standard Error 30.462 Observations 51 ANOVA df SS MS F Significance F Regression C 747851.57 373925.79 402.98 9.89E-31 Residual 48 D 927.91 Total 50 792391.11 Coefficient s Standard Error t Stat P-value Lower 95% Upper 95% Intercept E 62.13 26.79 1.60E-30 1539.66 1789.51 Price of Roses −6.68 F −1.41 1.64E-01 −16.16 2.81 Disposable Income 9.73 0.34 G 1.23E-31 9.04 10.42 (M) A. QRd = 1664.46 − 6.68PR + 9.73M. B. PR = 1664.46 − 6.68QR + 9.73M. C. Q d = 2.32 − 6.68P + 9.73M. D. There is not sufficient information to answer the question. Answer: A Learning Objective: 03-06 Topic: Regression Analysis Blooms: Apply AACSB: Analytical Thinking Difficulty: 01 Easy 0 3-50 , in whole or part. 136. A price elasticity of infinity 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. Answer: A Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 137. As we move up along a linear demand curve, the price elasticity of demand becomes more: A. elastic. B. inelastic. C. log-linear. D. variable. Answer: A Learning Objective: 03-01 Topic: Own Price Elasticity of Demand Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 138. If the cross-price elasticity between goods X and Y is positive, we know the goods are: A. inferior goods. B. complements. C. inelastic. D. substitutes. Answer: D Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 3-51 , in whole or part. 139. If the cross-price elasticity between goods X and Y is zero, we know the goods are: A. independent. B. complements. C. inelastic. D. substitutes. Answer: A Learning Objective: 03-01 Topic: Cross-Price Elasticity Blooms: Remember AACSB: Knowledge Application Difficulty: 01 Easy 140. Suppose the own price elasticity of demand for good X is −5, and the quantity of good X decreases by 5 percent. What would you expect to happen to the total expenditures on good X? A. Increase b. Decrease C. Unchanged D. Neither increase, decrease, nor remain unchanged Answer: B Learning Objective: 03-02 Topic: Own Price Elasticity of Demand Blooms: Understand AACSB: Knowledge Application Difficulty: 02 Medium 141. Suppose the own price elasticity of demand for good X is −0.25, and the quantity of good X increases by