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TEST BANK

Test Bank for Managerial Economics and Strategy Todd Fitch Managerial Economics and Strategy Third Edition

Jeff Perloff James Brander

Managerial Economics and Strategy, 3e (Perloff/Brander) Chapter 1 Introduction 1.1 Managerial Decision Making 1) Microeconomics studies the allocation of A) decision makers. B) scarce resources. C) models. D) unlimited resources. Answer: B Skill: Definition AACSB: Analytical Thinking Status: Old 2) Society faces trade-offs because of A) government regulations. B) the profit motive. C) price setting by firms. D) scarcity. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: New 3) Managerial economics A) describes how pay for managers is set. B) ensures managers always make good decisions. C) helps managers make decisions in the face of scarcity. D) explains which products consumers will buy. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 4) CEOs should focus on A) beating their competitors. B) maximizing firm profits. C) getting the best pay package for the senior management team. D) minimizing costs. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old

5) Profit is A) maximized when the marketing department coordinates with the production department. B) maximized when revenue is maximized. C) used to beat a company's rivals. D) the difference between a firm's revenues and its costs. Answer: D Skill: Definition AACSB: Analytical Thinking Status: Old 6) Firms face trade-offs because A) managers don't know which inputs to use. B) inputs are scarce. C) markets set prices of goods they sell. D) marginal reasoning leads to uncertainty. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 7) A firm's managers are constrained by A) consumers. B) workers. C) government. D) All of the above. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old 8) A market A) always involves the personal exchange of goods for money. B) allows interactions between consumers and firms. C) always takes place at a physical location. D) has no influence on prices. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old

9) In a market, A) the primary participants are consumers and firms. B) government policies play a very small part. C) decision makers always maximize. D) the goods sold are not closely related. Answer: A Skill: Conceptual AACSB: Analytical Thinking Status: New 10) Which of the following would NOT be considered part of a firm's strategy? A) production levels B) which inputs to use C) sales strategy D) None of the above—all are part of a firm's strategy. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old 11) What is the purpose of having a strategy? Answer: A strategy defines for a manager the actions to be taken to maximize the firm's profits. Skill: Conceptual AACSB: Written and Oral Communication Status: Old 12) Explain what the statement "We can't have everything we want" means. Answer: Because resources are scarce, we face tradeoffs. For example, a baker cannot use a piece of dough she has for both pizza and a croissant, so she has to decide which to make. Skill: Conceptual AACSB: Reflective Thinking Status: Old 13) What is profit? Answer: Profit is the difference between a firm's revenue or income and its costs or expenses. Skill: Definition AACSB: Written and Oral Communication Status: Old 14) Give an example of a tradeoff a pizza restaurant might face. Answer: Whether to make pepperoni or combination pizzas. Skill: Definition AACSB: Analytical Thinking Status: Old

15) Why might raising the price of a good by a dollar lead to lower profits? Answer: If the extra profit margin made on the units sold does not cover the lost profit from selling fewer units, then profits will actually decrease if the price is raised. Skill: Analytical AACSB: Analytical Thinking Status: Old 16) Why might raising the price of a good by a dollar lead to higher profits? Answer: If the extra profit margin made on the units sold covers the profit lost from selling fewer units, then profits will increase if the price is raised. Skill: Analytical AACSB: Analytical Thinking Status: Old 17) Raising the price of a good by one dollar A) increases profits. B) decreases profits. C) leaves profits unchanged. D) leads to an indeterminant change in profits. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 18) Most private firms seek to A) maximize revenue. B) maximize profit. C) minimize headcount. D) maximize employee salaries. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old For the following, please answer "True" or "False" and explain why. 19) Managers have to understand the decision making of others. Answer: True. Other entities such as governments and rivals may undertake actions that constrain a firm. Consumers and workers make decisions on how to spend their scarce resources, such as budgets and time. To maximize profits, the manager must understand how these other entities will behave. Skill: Conceptual AACSB: Analytical Thinking Status: Old

1.2 Economic Models 1) The purpose of making assumptions in economic model building is to A) force the model to yield the correct answer. B) minimize the amount of work an economist must do. C) simplify the model while keeping important details. D) express the relationship mathematically. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 2) Einstein was quoted saying "Everything should be made as simple as possible, but not simpler." When it comes to economic models this means that A) models shouldn't be too complex. B) models shouldn't be too simple. C) models should have a level of abstraction appropriate to the topic investigated. D) All of the above. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 3) If a model's predictions are correct, then A) its assumptions must have been correct. B) it is proven to be correct. C) Both A and B above. D) None of the above. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old 4) Economists tend to judge a model based upon A) the reality of its assumptions. B) the accuracy of its predictions. C) its simplicity. D) its complexity. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old

5) Economic models are most useful in A) explaining outcomes resulting from management decisions. B) predicting the direction of the stock market. C) explaining the future with the past. D) generating untestable hypotheses. Answer: A Skill: Conceptual AACSB: Analytical Thinking Status: Old 6) If an important assumption is omitted from an economic model, A) the model's predictions will only be accurate 50% of the time. B) the model's predictions may be inaccurate. C) the model will not predict anything. D) the model is not simple enough. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 7) Economic models are most often tested A) using computer simulations. B) using data from the distant past. C) using data from the real world. D) using logic alone. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 8) A microeconomic model CANNOT be used to A) evaluate the impact of a price change on a firm's revenue. B) predict the impact of an increase in the minimum wage on unemployment. C) evaluate the fairness of a proposal to nationalize health insurance. D) evaluate the effect of an increase in stadium size on the price of a sport team's tickets. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old

9) Economic models are only useful in analyzing government policy. A) True, individuals are irrational and therefore economic models are useless. B) False, economic models can be used to predict individual and firm behavior. C) True, economists only model those questions for which they are hired. D) False, economic models are not even useful in analyzing government policy. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 10) Microeconomic models are used to A) make predictions. B) explain real-life phenomena. C) evaluate production alternatives. D) All of the above. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old 11) If a theory's predictions are incorrect, A) then economists always reject it. B) then the data used was clearly faulty. C) then economists will likely reduce their confidence in the theory. D) then the model must be too simple. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 12) Which of the following is an example of a normative statement? A) A higher price for a good causes people to want to buy less of that good. B) A lower price for a good causes people to want to buy more of that good. C) To make the good available to more people, a lower price should be set. D) If you decrease the amount of sugar in soda drinks, sales to children will decrease. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: New

13) Which of the following is an example of a normative statement? A) Since this food is bad for you, you should not consume it. B) This food has negative health effects. C) If you consume this food, you will get sick. D) People usually get sick after consuming this food. Answer: A Skill: Conceptual AACSB: Analytical Thinking Status: Old 14) Which of the following is an example of a positive statement? A) Since this food is bad for you, you should not consume it. B) If this food is bad for you, you should not consume it. C) If you consume this food, you will get sick. D) None of the above. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 15) Behavioral economics is the study of why people A) choose not to optimize. B) optimize. C) sometimes don't optimize. D) behave badly when buying and selling. Answer: C Skill: Definition AACSB: Analytical Thinking Status: New 16) Legislators argue that a minimum wage law is instituted to help poor people. Economists can attack the minimum wage law on two fronts. First, some argue that government should not help the poor. Second, some argue that minimum wage laws actually hurt the poor because it creates unemployment. Which argument is normative and which is positive? Answer: An opinion about the role of government is a normative statement. An observation about the impact of a law is a positive statement. Skill: Analytical AACSB: Analytical Thinking Status: Old

17) Explain why a model that delivers good enough approximations is a good model. Answer: Models make simplifying assumptions in order to make them less complex and complicated and therefore usable. But when we simplify, we do leave out parts of the real world that have an impact on the results. If a model gives predictions or approximations that are close to reality, then the model is useful. Skill: Analytical AACSB: Analytical Thinking Status: New 18) Explain why economists might disagree on the content of a model. Answer: Economists might have different theories or might make different simplifying assumptions. Skill: Conceptual AACSB: Analytical Thinking Status: New For the following, please answer "True" or "False" and explain why. 19) Normative analysis offers decision makers the most valuable information when choosing among alternatives. Answer: False. Normative analysis states subjective goals but not how those goals can be achieved. To choose among alternatives a decision maker uses positive analysis. Skill: Analytical AACSB: Analytical Thinking Status: Old 20) If a model fits reality but doesn't generate testable predictions, it is of little value to economists. Answer: True. If the model doesn't deliver testable predictions it cannot be tested against competing models. Skill: Analytical AACSB: Analytical Thinking Status: Old 21) If actual experience supports two competing theories, then both theories are proven to be true. Answer: False. Neither theory can be rejected but if they are competing, then the test is inconclusive. Skill: Analytical AACSB: Analytical Thinking Status: Old

Managerial Economics and Strategy, 3e (Perloff/Brander) Chapter 2 Supply and Demand 2.1 Demand 1) An increase in consumer incomes will lead to A) a rightward shift of the demand curve for plasma TVs. B) a movement upward along the demand curve for plasma TVs. C) a rightward shift of the supply curve for plasma TVs. D) no change of the demand curve for plasma TVs. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 2) If the price of automobiles were to increase substantially, the demand curve for gasoline would most likely A) shift leftward. B) shift rightward. C) remain unchanged. D) become steeper. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 3) If the price of automobiles were to decrease substantially, the demand curve for public transportation would most likely A) shift rightward. B) shift leftward. C) remain unchanged. D) remain unchanged while quantity demanded would change. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 4) If the price of automobiles were to decrease substantially, the demand curve for pizza would most likely A) shift rightward. B) shift leftward. C) remain unchanged. D) remain unchanged while quantity demanded would change. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 1 Copyright © 2020 Pearson Education, Inc.

5) Consumers have been buying fewer CDs as downloadable music has become easier to purchase and use. We would represent this as A) a leftward shift of the demand curve for CDs. B) a rightward shift of the demand curve for CDs. C) a change in the price of CDs. D) a leftward shift of the supply curve for downloadable music. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 6) As people have become more health-conscious and decided to eat food that is better for them, A) the demand curve for scooters has shifted to the right. B) the demand curve for cupcakes has shifted to the right. C) the demand curve for oranges and apples has shifted to the right. D) None of the above. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 7) If a yet-to-be released video game receives a positive review in a popular gaming magazine, what happens to the demand curve for the video game? A) The demand curve is expected to shift to the right. B) The demand curve is expected to shift to the left. C) The demand curve is not expected to change. D) For those who read the review, demand shifts to the left. For those who don't read the review, demand shifts to the right. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 8) Which of the following cultural events likely increased the demand for the product highlighted in the event? A) The banning of cigarette advertising on television. B) The inclusion of Reese's Pieces in the movie E.T. C) Increased environmental awareness about the negative impacts of sport utility vehicles (SUVs). D) Concerns over "Mad Cow" disease in beef. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: New

9) Recently, many cities have attempted to pass laws taxing the sale of sugary drinks such as soda pop. If one of these laws passes, we would expect A) the supply curve for soda pop to shift to the right. B) the supply curve for soda pop to become more vertical. C) the demand curve for soda pop to shift to the right. D) the demand curve for soda pop to shift to the left. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 10) If a city were to ban the use of automobiles within its city limits, we would expect A) the demand curve for automobiles to shift to the left. B) people to move to another city. C) the demand curve for bicycles to shift to the left. D) the demand curve for automobiles to remain the same. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 11) The CB radio was very popular in the 1970s and 1980s for communicating while driving. People bought them because other drivers had them too and they could therefore talk with many others on their trips. This illustrates A) that the demand curve for CB radios was inelastic. B) the network effect. C) that CB radios and gasoline are complementary goods. D) the effects of mobile phones on the demand curve for CB radios. Answer: B Skill: Conceptual AACSB: Application of Knowledge Status: Old 12) The quantity demanded for a good A) must equal the quantity actually sold. B) can be less than the quantity actually sold. C) can be greater than the quantity actually sold. D) is always greater than the quantity actually sold. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old

13) An individual who is only willing to pay a relatively low amount for a particular good A) would fall in the upper portion of the demand curve. B) would fall in the middle portion of the demand curve. C) would fall in the lower portion of the demand curve. D) would not be considered part of the demand curve. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old 14) Assume Joe is only willing to pay $5 for a Ferrari sports car. A) Joe is not considered part of the demand for Ferraris. B) Joe won't be sold a Ferrari. C) Joe is not considered rational. D) Joe's willingness to pay is not indicative of how much he values the Ferrari. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 15) A downward sloping demand curve indicates that A) individuals all have the same valuation of the same product. B) individuals have different valuations of the same product. C) individuals have no valuations of a particular product. D) certain individuals are uninformed about certain aspects of the product. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 16) If the price is $5 and the quantity demanded is 100 units, then at a price of $10, the quantity demanded will be A) less than or equal to 100 units. B) greater than or equal to 100 units. C) greater than quantity supplied. D) equal to 100 units. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old

17) According to the Law of Demand, the demand curve for a good will A) shift leftward when the price of the good increases. B) shift rightward when the price of the good increases. C) slope downward. D) slope upward. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old 18) The law of demand A) was passed by the 102nd U.S. Congress. B) is a natural law, much like the law of gravity. C) is considered a "law" in economics because of the overwhelming empirical evidence that supports its logic. D) is considered a "law" in economics in order to force economic models to operate fully. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old 19) Which of the following would NOT change demand? A) The price of the product. B) Information about the product's health effects. C) The income of the consumers. D) The price of related products. Answer: A Skill: Conceptual AACSB: Application of Knowledge Status: New 20) If a demand curve shifts left, it implies A) as a group, consumers are willing and able to pay less for the product. B) as a group, consumers are willing and able to pay more for the product. C) government has regulated how many people can purchase the product. D) the profit motive of the firms is making the price too high. Answer: A Skill: Conceptual AACSB: Analytical Thinking Status: Old

21) An increase in the price of pork will lead to A) a movement up along the demand curve. B) a movement down along the demand curve. C) a rightward shift of the demand curve. D) a leftward shift of the demand curve. Answer: A Skill: Conceptual AACSB: Application of Knowledge Status: Old 22) Holding all other factors constant, consumers demand more of a good the A) higher its price. B) lower its price. C) steeper the downward slope of the demand curve. D) steeper the upward slope of the demand curve. Answer: B Skill: Conceptual AACSB: Application of Knowledge Status: Old 23) As the price of a good increases, the change in the quantity demanded can be shown by A) shifting the demand curve leftward. B) shifting the demand curve rightward. C) moving down along the same demand curve. D) moving up along the same demand curve. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old 24) A increase in quantity demanded as a result of a change in price A) is a rightward shift of the demand curve. B) is a leftward shift of the demand curve. C) leaves the demand curve unchanged. D) is not possible. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old

25) If the price of automobiles were to increase substantially, the demand curve for automobiles would most likely A) shift rightward. B) shift leftward. C) remain unchanged. D) become steeper. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 26) If the price of a pizza were to increase to $50, many people would give up eating pizza while others would continue to eat it. This would indicate A) those who are buying pizza value it at least $50 per pizza. B) those who are not buying pizza value it more than $50 per pizza. C) only those who are extremely wealthy are buying pizza. D) the price of pizza needs to be regulated by the federal government. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 27) Which of the following is NOT possible according to the law of demand? A) a horizontal demand curve B) a vertical demand curve C) a downward-sloping supply curve D) an upward-sloping demand curve Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old 28) A change in a relevant factor other than the price of the good itself causes a ________ the demand curve, and a change in a good's own price causes a ________ the demand curve. A) shift of; shift of B) shift of; movement along C) movement along; shift of D) movement along; movement along Answer: B Skill: Conceptual AACSB: Application of Knowledge Status: Old

29) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be demanded unless price is less than A) $0. B) $5. C) $12. D) $14. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 30) The above figure shows a graph of the market for pizzas in a large town. If the price falls from $10 to $7 per pizza, the quantity of pizzas demanded will A) increase by 20. B) decrease by 30. C) increase by 30. D) decrease by 10. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old

31) Assume the price of a movie is $10. Jenna demands 2 movies per week, Sam demands 3 movies per week, and Jordan demands 8 movies per week. From this information we can conclude that A) the market quantity demanded at a price of $10 is at least 13 movies per week. B) Jordan is obviously more wealthy than either Sam or Jeanna. C) Sam is irrational compared to Jenna or Jordan. D) the movie industry is unprofitable. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 32) To determine the total demand for all consumers, sum the quantity each consumer demands A) at a given price. B) at all prices and then sum this amount across all consumers. C) Both A and B will generate the same total demand. D) None of the above. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old For the following, please answer "True" or "False" and explain why. 33) If a good is not produced, then there is no demand for it. Answer: False. The demand for a product is independent of its supply. It is possible that people want to buy some of the product but at prices that are below what sellers would require to begin production. Skill: Conceptual AACSB: Analytical Thinking Status: Old 34) The quantity of a good that consumers demand depends only on the price of the good. Answer: False. The quantity of a good demanded depends on many factors including: its own price, consumers' incomes, and the price of related goods. Skill: Conceptual AACSB: Analytical Thinking Status: Old

35) Suppose the demand for a particular product can be expressed as Q = 100/p. Calculate the total amount spent on this good when p = 10, 20, and 50. Can you make a generalization about the mathematical form of this demand curve and consumer behavior in this market? Answer: In all cases, total expenditure equals 100 (since p * Q = 100). In general, a nonlinear demand curve of the form Q = A/p means that consumers wish to spend a total of A on this good regardless of its price. Skill: Analytical AACSB: Analytical Thinking Status: Old 2.2 Supply 1) Technological innovation in the production of computers has led to A) a decrease in the quantity demanded for computers. B) a rightward shift of the supply curve for computers. C) a decrease in the quantity supplied of computers. D) None of the above. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 2) The supply curve is influenced by A) the income of consumers. B) the number of customers in the market. C) the prices of the inputs required to produce the product. D) the price of the product being produced. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old 3) The price of crude oil rose to over $100 per barrel in early 2013. What would we expect to see happen to the supply of plastic, which is produced using crude oil? A) The supply of plastic will increase. B) The supply of plastic will decrease. C) The supply of plastic will stay the same because the government requires plastic producers to meet statutory minimum production levels. D) The supply of plastic will stay the same because of the profit motives of plastic producers. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old

4) Government regulations A) have no impact on supply. B) only change the quantity supplied, not the supply curve. C) are generally ineffective due to lobbying by suppliers. D) can change both quantity supplied as well as the supply curve. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old 5) The supply curve A) represents the quantity supplied at any given price. B) represents the quantity actually sold at any given price. C) is the opposite of the demand curve. D) always intersects the demand curve. Answer: A Skill: Conceptual AACSB: Application of Knowledge Status: Old 6) Suppose the demand curve for a good shifts rightward, causing the equilibrium price to increase. This increase in the price of the good results in A) a rightward shift of the supply curve. B) an increase in quantity supplied. C) a leftward shift of the supply curve. D) a downward movement along the supply curve. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 7) An increase in the price of oil will A) shift the supply curve of oil to the left. B) shift the supply curve of oil to the right. C) leave the supply curve of oil unchanged. D) Not enough information to answer the question. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old

8) The expression "increase in quantity supplied" is illustrated graphically as a A) leftward shift in the supply curve. B) rightward shift in the supply curve. C) movement up along the supply curve. D) movement down along the supply curve. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 9) The Law of Supply states A) that supply curves slope upward. B) that supply curves can be vertical or horizontal. C) Both A and B. D) None of the above. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old 10) Supply curves A) slope upward. B) slope downward. C) are horizontal. D) can have many shapes. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old 11) If the supply curve of a product changes so that sellers are now willing to sell 2 additional units at any given price, the supply curve will A) shift leftward by 2 units. B) shift rightward by 2 units. C) shift vertically up by 2 units. D) shift vertically down by 2 units. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old

12) The above figure shows a graph of the market for pizzas in a large town. No pizzas will be supplied unless the price is above A) $0. B) $5. C) $12. D) $14. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 13) Suppose there are 100 identical firms in the rag industry, and each firm is willing to supply 10 rags at any price. The market supply curve will be a A) vertical line where Q = 10. B) vertical line where Q = 100. C) vertical line where Q = 1000. D) horizontal line where Q = 1000. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 14) The market supply curve is found by A) horizontally summing all individual supply curves at a price. B) vertically summing all individual supply curves at a quantity. C) either A or B above since they both give the same answer. D) None of the above. Answer: A Skill: Conceptual AACSB: Application of Knowledge Status: Old 13 Copyright © 2020 Pearson Education, Inc.

15) Suppose the following information is known about a market: 1. Sellers will not sell at all below a price of $2. 2. At a price of $10, any given seller will sell 10 units. 3. There are 100 identical sellers in the market. Assuming a linear supply curve, use this information to derive the market supply curve. Answer: First, Q = 100q since all firms are identical. This gives two points: (p = 2, Q = 0) and (p = 10, Q = 1000). From the first point, it is known that p = 2 + bQ. When Q = 1000, 10 = 2 + b(1000). Solving for b yields b = .008. Rearranging to solve for Q yields: Q = -250 + 125p or P = 2 + .008Q. Skill: Analytical AACSB: Analytical Thinking Status: Old 2.3 Market Equilibrium 1) Equilibrium is defined as a situation in which A) neither buyers nor sellers want to change their behavior. B) no government regulations exist. C) demand curves are perfectly horizontal. D) suppliers will supply any amount that buyers wish to buy. Answer: A Skill: Conceptual AACSB: Application of Knowledge Status: Old 2) A market equilibrium occurs A) only with government regulation. B) only because of the profit motive of firms. C) only because of the complacency of consumers. D) through the interaction of self-interested buyers and sellers. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: New 3) A market is said to "clear" when A) sellers give up selling their goods because they can't find any buyers. B) buyers and sellers are able to buy and sell as much as they want at the market price. C) the government decides to shut it down. D) sellers run out of goods to sell. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 14 Copyright © 2020 Pearson Education, Inc.

4) At equilibrium, quantity sold equals the quantity bought. This implies that A) to sell more, producers require more in payment than consumers are willing to pay. B) government regulation is necessary. C) to sell less would require a lower price but would yield greater profit. D) those who don't buy have been treated unfairly. Answer: A Skill: Conceptual AACSB: Application of Knowledge Status: Old

5) The above figure shows a graph of the market for pizzas in a large town. At a price of $10, there will be A) no pizzas supplied. B) equilibrium. C) excess supply. D) excess demand. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: New 6) The above figure shows a graph of the market for pizzas in a large town. At a price of $5, there will be A) excess demand. B) excess supply. C) equilibrium. D) zero demand. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 15 Copyright © 2020 Pearson Education, Inc.

7) The above figure shows a graph of the market for pizzas in a large town. What are the equilibrium price and quantity? A) p = 8, Q = 60 B) p = 7, Q = 40 C) p = 7, Q = 70 D) p = 10, Q = 40 Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 8) The figure above shows a graph of the market for pizzas in a large town. What characterizes the equilibrium in this market? A) There is excess supply at the equilibrium price of $7. B) The government has selected the appropriate price for pizzas. C) The quantity supplied equals the quantity demanded. D) Supply equals demand. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 9) The above figure shows a graph of a market for pizzas in a large town. At a price of $7, what is the amount of excess demand? A) 0; there is excess supply at $7. B) 20 units C) 30 units D) 10 units Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 10) The above figure shows a graph of a market for pizzas in a large town. At a price of $10, the market A) is not in equilibrium. B) has excess supply. C) does not have excess demand. D) All of the above. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old

11) If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium price? A) 14 B) 42 C) 12.67 D) 38 Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 12) If Qs = -20 + 10p, and Qd = 400 - 20p, what is the equilibrium quantity? A) 440 B) 146.6 C) 360 D) 120 Answer: D Skill: Analytical AACSB: Analytical Thinking Status: New 13) After tickets for a major sporting event are purchased at the official box office price, a market often develops whereby these tickets sell at prices well above the official box office price. Which of the following scenarios would NOT be able to explain this result? A) The official price was below equilibrium from the moment the tickets were available. B) Increased publicity causes the demand curve for the event to shift rightward. C) The event was not a sellout. D) Not everyone who wanted a ticket was able to buy one at the box office. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 14) According to Adam Smith's invisible hand A) markets need the government to intervene. B) forces are constantly pushing markets out of equilibrium C) people and firms coordinate their activities, resulting in equilibrium in the market. D) there is an invisible glove that restricts what markets can do. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: New

15) A competitive equilibrium is described by A) a price only. B) a quantity only. C) the excess supply minus the excess demand. D) a price and a quantity. Answer: D Skill: Definition AACSB: Application of Knowledge Status: Old 16) If price is initially above the equilibrium level, A) the supply curve will shift rightward. B) the supply curve will shift leftward. C) excess supply exists. D) all firms can sell as much as they want. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old 17) If the price of a good is initially below the equilibrium level A) the supply curve will shift leftward. B) the supply curve will shift rightward. C) firms supply none of the good. D) excess demand exists. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old 18) In some markets, ________ act to adjust the price to bring the market into equilibrium. A) bulls B) regulators C) market makers D) web sites Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old

For the following, please answer "True" or "False" and explain why. 19) When a market is in disequilibrium consumers and producers change their behavior. As a result, the market reaches equilibrium. Answer: True. For example, when a shortage exists at a given price consumers bid up the price and firms increase production until the equilibrium is reached. Skill: Conceptual AACSB: Analytical Thinking Status: Old 20) Explain why the equilibrium price is called the market clearing price. Answer: At the equilibrium price, sellers want to sell the exact amount consumers want to buy. There is no excess demand or excess supply. The market is exactly cleared of all goods. Skill: Conceptual AACSB: Analytical Thinking Status: Old 2.4 Shocks to the Equilibrium 1) Once an equilibrium is achieved, it can persist indefinitely because A) shocks that shift the demand curve or the supply curve cannot occur. B) shocks to the demand curve are always exactly offset by shocks to the supply curve. C) the government never intervenes in markets at equilibrium. D) in the absence of supply/demand shocks no one applies pressure to change the price. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: New 2) From the 1970s through the 1990s, the relative price of a college education has increased greatly. During the same time period, college enrollment has also increased. This evidence suggests that during this time period A) the demand curve for a college education has shifted leftward. B) the demand curve for a college education has shifted rightward. C) the supply curve for a college education has shifted leftward. D) the supply curve for a college education has shifted rightward. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old

3) Suppose a market with an upward-sloping supply curve were currently at equilibrium. A rightward shift of the demand curve would cause A) an increase in price but a decrease in quantity. B) a decrease in price but an increase in quantity. C) an increase in both price and quantity. D) a decrease in both price and quantity. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: New 4) A rightward shift of the demand curve in a market with an upward-sloping supply curve will lead to a(n) A) increase in equilibrium price. B) excess demand at the old equilibrium price. C) increase in quantity supplied. D) All of the above. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: New 5) A leftward shift of the demand curve in a market with an upward-sloping supply curve will lead to a(n) A) decrease in equilibrium price. B) excess supply at the old equilibrium price. C) decrease in quantity supplied. D) All of the above. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: New 6) If pizza and tacos are substitutes, a decrease in the price of tacos would lead to a A) decrease in the demand curve for pizza. B) decrease in the quantity demanded of pizza. C) decrease in the price of pizza. D) All of the above. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old

7) Suppose a market with a downward-sloping demand curve were currently at equilibrium. A rightward shift of the supply curve would cause a(n) A) increase in price and a decrease in quantity. B) decrease in price and an increase in quantity. C) increase in both price and quantity. D) decrease in both price and quantity. Answer: B Skill: Conceptual AACSB: Application of Knowledge Status: New 8) A rightward shift of the supply curve in a market with a downward-sloping demand curve will lead to a(n) A) decrease in equilibrium price. B) excess supply at the old equilibrium price. C) increase in quantity demanded. D) All of the above. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: New 9) A leftward shift of the supply curve in a market with a downward-sloping demand curve will lead to a(n) A) increase in equilibrium price. B) excess demand at the old equilibrium price. C) decrease in quantity demanded. D) All of the above. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: New 10) If the demand curve is vertical a rightward shift of the supply curve will lead to A) an increase in quantity supplied. B) an increase in quantity demanded. C) a decrease in quantity demanded. D) a decrease in price. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old

11) If the demand curve is horizontal a rightward shift of the supply curve will lead to A) an increase in quantity supplied. B) an increase in price. C) a decrease in quantity demanded. D) a decrease in price. Answer: A Skill: Conceptual AACSB: Application of Knowledge Status: Old 12) A drought in the Midwest will raise the price of wheat because of a A) leftward shift in the supply curve. B) rightward shift in the supply curve. C) leftward shift in the demand curve. D) rightward shift in the demand curve. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 13) The owner of a railroad that carries cargo should ________ supply when she foresees regulations that will ________ the cost of shipping cargo by truck. A) decrease; increase B) decrease; leave unchanged C) increase; increase D) leave unchanged; increase Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old

14) The above figure shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for coffee after severe weather destroys a large portion of the coffee crop? A) Graph A B) Graph B C) Graph C D) Graph D Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old

15) The above figure shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for tea after severe weather destroys a large portion of the coffee crop? A) Graph A B) Graph B C) Graph C D) Graph D Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 16) The above figure shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for non-dairy coffee creamer after severe weather destroys a large portion of the coffee crop? A) Graph A B) Graph B C) Graph C D) Graph D Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 17) The above figure shows four different markets with changes in either the supply curve or the demand curve. Which graph best illustrates the market for computers after technological advances in making computers occur? A) Graph A B) Graph B C) Graph C D) Graph D Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 18) If oranges were found to cure cancer A) the equilibrium price of apples would likely fall. B) the equilibrium price of oranges would likely increase in the near term. C) the equilibrium quantity of oranges would likely increase. D) All of the above. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old

19) If the demand for eBook readers increases and the supply of eBook readers increases, then A) it is clear that prices will increase, the change in the quantity of eBook readers sold is ambiguous. B) it is clear that prices will decrease, the change in the quantity of eBook readers sold is ambiguous. C) it is clear that quantity sold will increase, the change in the price of eBook readers is ambiguous. D) it is clear that quantity sold will decrease, the change in the price of eBook readers is ambiguous. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 20) If the demand for CD players decreases and the supply of CD players decreases, then A) it is clear that prices will decrease, the change in the quantity of CD players sold is ambiguous. B) it is clear that prices will increase, the change in the quantity of CD players sold is ambiguous. C) it is clear that quantity sold will decrease, the change in the price of CD players is ambiguous. D) it is clear that change in quantity sold is ambiguous, the change in the price of CD players is ambiguous. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old For the following, please answer "True" or "False" and explain why. 21) During a severe winter, the price of home heating oil is expected to be more than it would be during a normal winter. Answer: True. During a severe winter, people need to operate their furnace more often than in a normal winter. The demand for home heating oil lies to the right of where it would be under normal weather conditions. As a result, the price of oil rises. Skill: Analytical AACSB: Analytical Thinking Status: New

22) Suppose there is a linear downward-sloping demand curve and a linear upward-sloping supply curve for a good. The price of a substitute good increases and the price of an input to production also increases. Graph the original demand and supply curves, and the curves after the substitute good and input prices increase. How will the equilibrium price change after the substitute and input prices increase? Answer:

See the above figure. The new demand curve will be to the right of the original demand curve and the new supply curve will be to the left of the original supply curve. The equilibrium price will increase. The change in equilibrium quantity cannot be determined and will depend on the relative magnitude of the supply and demand shifts. Skill: Analytical AACSB: Analytical Thinking Status: Old 2.5 Effects of Government Interventions 1) Government actions can cause a A) shift in the supply curve. B) shift in the demand curve. C) reaction from firms in other countries. D) All of the above. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old

2) When an imported good has restrictions placed on it that limits the amount that can be imported and as a result the price of the good increases, the demand curve for that good will A) shift rightward. B) shift leftward. C) become steeper. D) be unaffected. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: New 3) Government prohibition of advertising cigarettes on television would most likely result in A) a rightward shift in the demand curve for cigarettes. B) a leftward shift in the demand curve for cigarettes. C) a rightward shift in the demand curve for television advertising time. D) no change in the market for either cigarette or television advertising. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 4) If a government-imposed price ceiling causes the observed price in a market to be below the equilibrium price, A) there will be excess demand. B) there will be excess supply. C) the curves will shift to make a new equilibrium at the regulated price. D) None of the above. Answer: A Skill: Conceptual AACSB: Analytical Thinking Status: Old 5) A price ceiling that is set above the equilibrium price A) causes suppliers to raise their prices. B) is binding. C) is non-binding. D) creates a shortage. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old

6) A price ceiling that is set below the equilibrium price A) causes suppliers to raise their prices. B) is binding. C) is non-binding. D) creates a surplus. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 7) A price ceiling that is set below the equilibrium price A) causes suppliers to lose money. B) creates a shortage. C) is non-binding. D) creates a surplus. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 8) Consumer groups tend to lobby for A) price floors. B) price ceilings. C) quantity quotas. D) taxes. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 9) When there is a binding price ceiling, A) there is no equilibrium. B) the quantity demanded does not equal the quantity supplied. C) all potential customers are happy because they can buy the good at a lower price. D) producers move production to another country. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old

10) A restriction on the number of people allowed to be medical doctors in the United States would most likely A) increase doctors' fees. B) decrease the demand for doctors. C) decrease the demand for nurses. D) decrease the number of people who get sick. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 11) In the labor market, if the government imposes a minimum wage that is below the equilibrium wage, then A) workers who wish to work at the minimum wage will have a difficult time finding jobs. B) firms will hire fewer workers than without the minimum wage law. C) some workers may lose their jobs as a result. D) nothing will happen to the wage rate or employment. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old 12) Agricultural price supports are A) price ceilings. B) price floors. C) quantity quotas. D) taxes. Answer: B Skill: Conceptual AACSB: Application of Knowledge Status: Old 13) Producer groups tend to lobby for A) price floors. B) price ceilings. C) quantity quotas. D) taxes. Answer: A Skill: Conceptual AACSB: Analytical Thinking Status: Old

14) When there is a binding price floor A) there is no equilibrium. B) the quantity demanded does not equal the quantity supplied. C) all potential producers are happy because they can sell the good at a higher price. D) the government is helping consumers at the expense of producers. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 15) A price floor that is set below the equilibrium price A) causes suppliers to lower their prices. B) is binding. C) is non-binding. D) creates a shortage. Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 16) A price floor that is set above the equilibrium price A) causes suppliers to lower their prices. B) is binding. C) is non-binding. D) creates a shortage. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old 17) A price floor that is set above the equilibrium price A) causes suppliers to lose money. B) creates a shortage. C) is non-binding. D) creates a surplus. Answer: D Skill: Conceptual AACSB: Analytical Thinking Status: Old

18) The above figure shows the market for apples. If a consumer group convinces the government to set a maximum price of $2 per pound, then A) 300 pounds of apples will be sold at $2. B) no apples will be supplied. C) no apples will be demanded. D) there will be a shortage of 100 pounds of apples. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 19) The above figure shows the market for apples. If apple farmers convince the government to set a minimum price of $4 per pound, then A) 100 pounds of apples will be sold at $4. B) no apples will be supplied. C) no apples will be demanded. D) None of the above. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old

20) The above figure shows a graph of the market for pizzas in a large town. Suppose that concern over dietary habits has led the government to impose a restriction that limits suppliers to produce no more than 40 pizzas. What will the price of pizza be as a result of this quota? A) $2 B) $7 C) $8 D) $10 Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 21) The above figure shows a graph of the market for pizzas in a large town. Suppose that concern over dietary habits has led the government to impose a restriction that limits suppliers to produce only 40 pizzas. As a result, for prices greater than $7, the A) supply curve is unchanged. B) supply curve is vertical. C) demand curve becomes vertical. D) demand curve becomes horizontal. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old

22) The above figure shows a graph of the market for pizzas in a large town. As a result of concern over the affordability of pizza, the government restricts sellers from charging a price over $7. As a result, the quantity of pizzas consumed will A) increase. B) decrease. C) remain unchanged. D) be indeterminable. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 23) A specific tax on sellers will A) shift the demand curve to the right. B) shift the demand curve to the left. C) shift the supply curve to the right. D) shift the supply curve to the left. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old 24) If the government places a $1.20 tax on each pizza sold, A) consumers will have to pay $1.20 more for each pizza they buy. B) the supply curve will shift left by $1.20. C) the demand curve will shift right by $1.20. D) both the demand curve and the supply curve will shift by 60 cents each. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 25) If the government places a $1500 tax on each hybrid car sold, A) consumers will stop buying hybrid cars. B) the demand curve will shift to the right by $1500. C) the supply curve will shift to the right by $1500. D) None of the above. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: New

26) If the government institutes a specific tax for a good, A) the producer simply passes the entire tax on to the consumer. B) the producer must absorb the entire tax. C) the producer can generally only pass part of the tax onto the consumer. D) the equilibrium price drops. Answer: C Skill: Conceptual AACSB: Application of Knowledge Status: Old 2.6 When to Use the Supply-and-Demand Model 1) It is appropriate to use the supply-and-demand model if, in a market, A) everyone is a price taker with full information about the price and quality of the good. B) firms sell identical products. C) costs of trading are low. D) All of the above. Answer: D Skill: Conceptual AACSB: Application of Knowledge Status: Old 2) Consumers and firms are known as price takers only if A) no market exists to determine the equilibrium price. B) they can set the market price. C) they cannot unilaterally affect the market price. D) excess demand exists. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old 3) Costs that pertain to finding a trading partner and making a trade are called A) transaction costs. B) transgression costs. C) consumption costs. D) transaction taxes. Answer: A Skill: Definition AACSB: Application of Knowledge Status: Old

4) It is appropriate to use the supply-and-demand model in which of the following markets? A) beer market B) car market C) wheat market D) market for breakfast cereal Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 5) It is appropriate to use the supply-and-demand model in which of the following markets? A) beer market B) wine market C) real estate market D) market for gourmet pizza Answer: C Skill: Conceptual AACSB: Analytical Thinking Status: Old 6) Which of the following is NOT a characteristic of perfectly competitive markets? A) There is free entry and exit. B) All market participants are price-takers. C) It is hard to find a trading partner. D) All products are identical. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old 7) Which of the following is NOT a characteristic of perfectly competitive markets? A) The government restricts the number of producers through licensing requirements. B) All market participants are price-takers. C) It is easy to find a trading partner. D) All products are identical. Answer: A Skill: Definition AACSB: Application of Knowledge Status: Old

8) Which of the following is NOT a characteristic of perfectly competitive markets? A) Transactions costs are a very small part of the sale. B) All market participants are price-takers. C) It is easy to find a trading partner. D) Products are differentiated. Answer: D Skill: Definition AACSB: Application of Knowledge Status: Old 9) Which of the following is NOT a characteristic of perfectly competitive markets? A) Transactions costs are a very small part of the sale. B) There are three suppliers that form an oligopoly. C) It is easy to find a trading partner. D) All products are identical. Answer: B Skill: Definition AACSB: Application of Knowledge Status: Old 10) Which of the following is NOT a characteristic of perfectly competitive markets? A) Transactions costs are a very small part of the sale. B) Information about the product is difficult to find and understand. C) It is easy to find a trading partner. D) All products are identical. Answer: B Skill: Definition AACSB: Application of Knowledge Status: Old 11) Which of the following is NOT a characteristic of perfectly competitive markets? A) Buying the product requires you to hire a lawyer to write a contract. B) All market participants are price-takers. C) You are the only buyer of the product. D) All products are identical. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old

Managerial Economics and Strategy, 3e (Perloff/Brander) Chapter 3 Empirical Methods for Demand Analysis 3.1 Elasticity 1) The percentage change in the quantity demanded in response to a percentage change in the price is known as the A) slope of the demand curve. B) excess demand. C) price elasticity of demand. D) All of the above. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old 2) The elasticity of demand is A) measured in money (e.g., dollars). B) measured in units of the good (e.g., slices of pizza). C) a pure number (e.g. unitless). D) measured in money/unit (e.g., 1.50 $/slice of pizza). Answer: C Skill: Definition AACSB: Application of Knowledge Status: New 3) If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, calculate the arc price elasticity. A) -1.92 B) -1.64 C) -4 D) -2 Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old

4) If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, using the formula for arc price elasticity, what is the percentage change in price? A) 18.18% B) 29.89% C) 20% D) 16.67% Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 5) If the price of a slice of pizza rises from $2.50 to $3, and quantity demanded falls from 10,000 slices to 7,400 slices, using the formula for arc price elasticity, what is the percentage change in quantity? A) -18.18% B) -29.89% C) -26% D) -35.14% Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 6) To calculate the point elasticity of demand, a manager must know A) where the supply curve intersects the demand curve. B) two points on the demand curve. C) information about the entire demand curve. D) whether or not the demand curve is linear. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old 7) If the demand curve is given by Q = a + bp, then a is A) negative. B) the quantity demanded when price is zero. C) the slope of the demand curve. D) measured in money. Answer: B Skill: Definition AACSB: Application of Knowledge Status: Old

8) If the demand curve is given by Q = a + bp, then b is A) positive. B) the quantity demanded when price is zero. C) the change in quantity demanded if price changes by 1. D) different at different points on the demand curve. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old 9) If the demand curve for slices of pizza is given as Q = 300 - 16p, then the point elasticity of demand when price is $1.50 is A) -24. B) -16. C) -0.0054. D) -0.087. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 10) If the elasticity of demand is -2.3 when calculated using the point elasticity method and -3.4 using the arc elasticity method, then A) you should use the point elasticity. B) it is OK to use either one. C) there must be a mistake in the calculations. D) you should use the arc elasticity. Answer: B Skill: Conceptual AACSB: Application of Knowledge Status: Old 11) Suppose the demand function for a good is expressed as Q = 100 - 4p. If the good currently sells for $10, then the point price elasticity of demand equals A) -1.5. B) -0.67. C) -4. D) -2.5. Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old

12) If the price of orange juice rises 10%, and as a result the quantity demanded falls by 8%, the price elasticity of demand for orange juice is A) -1.25. B) -80.0. C) -0.80. D) -10.0. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 13) The market demand for wheat is Q = 100 - 2p + 1pb, where pb is the price of barley. If the price of wheat is $2, the price elasticity of demand A) equals (-4/46). B) equals (-46). C) equals (-1). D) cannot be calculated without more information. Answer: D Skill: Analytical AACSB: Analytical Thinking Status: Old 14) Elasticity along a downward sloping linear demand curve A) is constant and equal to the slope of the curve. B) is constant and equal to the slope times the ratio of price to quantity. C) changes along the curve. D) does not vary with price unless the good is expensive. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old 15) Horizontal and vertical demand curves A) have constant elasticities. B) are not possible in the real world. C) have elasticities that change with price. D) cannot have their elasticities computed using the point method. Answer: A Skill: Definition AACSB: Application of Knowledge Status: Old

16) The above figure shows the demand curve for crude oil. If the market price is $10 a barrel, what is the price elasticity of demand? A) -.02 B) -1 C) -10 D) -500 Answer: B Skill: Analytical AACSB: Analytical Thinking Status: Old 17) The above figure shows the demand curve for crude oil. The demand curve has unitary price elasticity when price equals A) $0. B) $1. C) $10. D) $20. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old

18) If the demand function for orange juice is expressed as Q = 2000 - 500p, where Q is quantity in gallons and p is price per gallon measured in dollars, then the demand for orange juice has a unitary elasticity when price equals A) $0. B) $1. C) $2. D) $4. Answer: C Skill: Analytical AACSB: Analytical Thinking Status: Old 19) If the demand for orange juice is expressed as Q = 2000 - 500p, where Q is measured in gallons and p is measured in dollars, then at the price of $3, the demand curve A) is elastic. B) has a unitary elasticity. C) is inelastic. D) is perfectly inelastic. Answer: A Skill: Analytical AACSB: Analytical Thinking Status: Old 20) If the demand curve for comic books is expressed as Q = 10,000 * p-1, then demand has a unitary elasticity A) only when p = 10,000. B) only when p = 100. C) always. D) never. Answer: C Skill: Definition AACSB: Application of Knowledge Status: Old 21) If the demand curve for a good always has unitary price elasticity, what does this imply about consumer behavior? A) Consumers do not react to a price change. B) Consumers will spend a constant total amount on the good. C) Consumers are irrational. D) Consumers do not obey the Law of Demand. Answer: B Skill: Conceptual AACSB: Analytical Thinking Status: Old