Managerial Economics Applications Strategies And Tactics 14th Edition by James – Test Bank

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

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

  b.  no one wants to buy leather jackets.

  c.  demand for leather jackets is elastic.

  d.  a cut in the prices will increase total revenue.

  e.  leather jackets are luxury items.

ANSWER:   a

POINTS:   1

DIFFICULTY:   Easy

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

NATIONAL STANDARDS:   United States – BPROG: Analytic

TOPICS:   The Price Elasticity of Demand

KEYWORDS:   Knowledge

DATE CREATED:   6/21/2016 8:43 AM

DATE MODIFIED:   6/21/2016 8:43 AM

2. If demand were inelastic, then we should immediately:

  a.  cut the price.

  b.  keep the price where it is.

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

  D. Stop selling it since it is inelastic.

  e.  raise the price.

ANSWER:   e

POINTS:   1

DIFFICULTY:   Moderate

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

NATIONAL STANDARDS:   United States – BPROG: Analytic

TOPICS:   The Price Elasticity of Demand

KEYWORDS:   Comprehension

DATE CREATED:   6/21/2016 8:43 AM

DATE MODIFIED:   6/21/2016 8:43 AM

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

  a.  fall .5%.

  b.  not change.

  c.  rise 1%r.

  d.  rise 2%.

  e.  rise .5%.

ANSWER:   e

POINTS:   1

DIFFICULTY:   Challenging

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

NATIONAL STANDARDS:   United States – BPROG: Reflective Thinking – BPROG: Analysis

TOPICS:   Cross Elasticity of Demand

KEYWORDS:   BLOOMS: Application

DATE CREATED:   6/21/2016 8:43 AM

DATE MODIFIED:   6/21/2016 8:43 AM

4. A linear demand for lakefront cabins on a nearby lake is estimated to be:  Q_D = 900,000 – 2P.  What is the point price elasticity for lakefront cabins at a price of P = $300,000?   [HINT: E_p = (∂Q/∂P)(P/Q)]

  a.  E_P = -3.0

  b.  E_P = -2.0

  c.  E_P = -1.0

  d.  E_P = -0.5

  e.  E_P = 0

ANSWER:   b

POINTS:   1

DIFFICULTY:   Challenging

QUESTION TYPE:   Multiple Choice

HAS VARIABLES:   False

NATIONAL STANDARDS:   United States – BPROG: Reflective Thinking – BPROG: Analysis

TOPICS:   The Price Elasticity of Demand

KEYWORDS:   BLOOM’S: Comprehension

DATE CREATED:   6/21/2016 8:43 AM

DATE MODIFIED:   6/21/2016 8:43 AM