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20 Cards in this Set

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Suppose we estimate that demand elasticity for fine leather jackets is -.7 at their current prices. Then we know that:


a. a 1% increase in price reduces quantity sold by .7%


b. no on wants to buy leather jackets


c. demand for leather jackets is elastic


d. a cut in the prices with increase total reveue


e. leather jackets are luxury items

A. a 1% increase in price reduces quantity sold by .7%

If demand were inelastic, then we should immediately:


a. cut the price


b. keep the price where it is


c. go to the Nobel Prize Committee to show we were the first to find an upward sloping demand curve


d. stop selling it since it is inelastic


e. raise the price

e. raise the price

In this problem, demonstrate your knowledge of percentage rates of change of an entire demand function (HINT: %ChangeQ=Ep x %changeP + Ey x %chagey) You have found that the price elasticity of motor control devises at Allen-Bradley Corporation is -2, and that the income elasticity is a +1.5. You have been asked to predict sales of these devises for one year into the future. Economists from the Conference Board predict that income will be rising 3% over the next year, and AB's management is planning to raise prices 2%. You expect that the number of AB motor control devices sol in one year will:


a. fall .5%


b. not change


c. rise 1%


d. rise 2%


e. rise .5%

e. rise .5%



=-2(2%) + 1.5 (3%)


=+.5%

A linear demand for lake front cabins on a nearby lake is estimated to be Qd=900000-2P. What is the point price elasticity for lake front cabins at a price of P=$300,000. HINT: Ep=(DerivativeQ/DerivativeP)x(P/Q)


a. -3


b. -2


c. -1


d. -.5


e. 0

b. -2



Q= 900,000-2(300,000)


Q= 300,000



Ep= -2 x (300,000/300,000)


Ep= -2

Property taxes are the product of the tax rate (t) and the assessed value (v). The total property tax collected in your city (P) is: P=TxV. IF the value of properties rise 4% and if MAyor and City Council reduces the property the tax rate by 2%, what happens to the toal amount of property tax collected? HINT: the percentage rate of change of a product is approximately the sum of the percentage rates of change.


a. it rises 6%


b. it rises 4%


c. it rises 3%


d. it rises 2%


e. it falls 2%

d. it rises 2%



+4% + -2% = +2%

Demand is given by Qd=620-10P and supply is given by Qs=100+3P. What is price and quantity when the market is in equilibrium?


a. The price will be $30 and the quantity will be 132 units


b. The prices will be $11 and the quantity will be 122 units


c. The price will be $40 and the quantity will be 220


d. The price will be $35 and the quantity will be 137


e. The price will be $10 and the quantity will be 420.

c. The price will be $40 and the quantity will be 220



Qd=Qs


100+3P=620-10P


13P=520


P=40



Q=620-10(40)


Q=220

Which of the following would tend to make demand INELASTIC?


a. the amount of time analyzed is quite long


b. there are lots of substitutes available


c. the product is highly durable


d. the proportion of the budget spent on the item is very small


e. no one really wants the product at all

d. the proportion of the budget spent on the item is very small

Which of the following best represents management's objective(s) in utilizing demand analysis?


a. it provides insights necessary for the effective manipulation of demand


b. it helps to measure the efficiency of the use of company resources


c. it aids in the forecasting of sales and revenues


d. a and b


e. a and c

e. a and c

Identify the reasons why the quantity demanded of a product increases as the price of that product decreases.


a. as the price declines, the real income of the consumer increases


b. as the price of product A declines, it makes it more attractive than product B


c. as the price declines, the consumer will always demand more on each successive price deduction


d. a and b


e. a and c

d. a and b

An increase in the quantity demanded could be caused by:


a. an increase in the price of substitute goods


b. a decrease in the price of complementary goods


c. an increase in consumer income levels


d. all of the above


e. none of the above

d. all of the above

Using a sample of 100 consumers, a double-log regression model was used to estimate demand for gasoline. Standard errors of the coefficients appear in the parentheses below the coefficients.


LnQ = 2.45 - 0.67 Ln P + .45 Ln Y - .34 Ln Pcars


(.20) (.10) (.25)


Where Q is gallons demanded, P is price per gallon, Y is disposable income, and Pcars is a price index for cars. Based on this information, which is NOT correct?


a. Gasoline is inelastic


b. Gasoline is a normal good


c. Cars and gasoline appear to be mild complements


d. The coefficient on the price of cars in insignificant


e. All of the coefficients are insignificant

e. All of the coefficients are insignificant

In a cross section regression of 48 states, the following linear demand for per-capita cans of soda was found: Cans = 159.17-102.56Price + 1.00Income +3.94Temp


From the linear regression results in the cans case above, we know that:


a. Price is insignificant


b. Income is significant


c. Temp is significant


d. As price rises for soda, people tend to drink less of it


e. All of the coefficients are significant

d. As price rises for soda, people tend to drink less of it

A study of expenditures on food in cities resulting in the following equation:


Log E = 0.693 Log Y + 0.224 Log N


where E is food expenditures, Y is total expenditures on goods and services, and N is the size of the family. This evidence implies:


a. that as total expenditures on goods and services rises, food expenditures falls.


b. that a one-percent increase in family size increases food expenditures .693%


c. that a one-percent increase in family size increases food expenditures .224%


d. that a one-percent increase in total expenditures increases food expenditures 1%


e. that as family size increases, food expenditures go down.

c. that a one-percent increase in family size increases food expenditures .224%

All of the following are reasons why an association relationship may not imply a casual relationship except:


a. the association may be due to pure chance


b. the association may be the result of the influence of a third common factor


c. both variables may be the cause and the effect at the same time


d. the association may be hypothetical


e. both c and d

d. the association may be hypothetical

In regression analysis, the existence of a significant pattern in successive values of the error term constitutes:


a. heteroscedasticity


b. autocorrelation


c. multicollinearity


d. nonlinearities


e. a simultaneous equation relationship

b. autocorrelation

In regression analysis, the existence of a high degree of inter-correlation among some or all of the expanatory variables in the regression equation constitutes:


a. autocorrelation


b. a simultaneous equation relationship


c. nonlinearities


d. heteroscedasticity


e. multicollinearity


e. multicollinearity

When using a multiplicative power function to represent an economic relationship, estimates of the parameters using linear regression analysis can be obtained by first applying a ___ transformation to convert the function to a linear relationship.


a. semilogarithmic


b. double-logarithmic


c. reciprocal


d. polynomial


e. cubic

b. double-logarithmic

The correlation coefficient ranges in value between 0.0 and 1.0


a. true


b. false

b. false

The coefficient of determination ranges in value between 0.0 and 1.0


a. true


b. false

a. true

The coefficient of determination measures the proportion of the variation in the independent variable that is "explained" by the regression line.


a. true


b. false

b. false