Supply and Demand and Price
Chapter 04
Demand
10. The long-run price elasticity of demand for a product is generally _________ the short-run elasticity for the same product.
A. lower than
B. equal to
C. higher than
D. not comparable to
11. Assume the demand function for skin care products is given by Q = 1,000 – 20 P + 5I. If P=$25 and I=$1,000 currently, then:
A. skin care products are a normal good.
B. the elasticity of demand is equal to 11.
C. skin care products are inferior.
D. The price is too high
12. If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then:
A. the demand for product A is likely to have a low price elasticity.
B. products A and B are substitutes.
C. products A and B are complements
D. the demand for product B is likely to have a low price elasticity.
13. Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
A. Pyrotex will surely increase its profits by decreasing the price of fireworks.
B. Pyrotex will surely increase its profits by increasing the price of fireworks.
C. Pyrotex cannot increase its profits by changing the price of fireworks.
D. Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
14. Sales of shampoo by CleanHair, Inc. have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that:
A. the cross-price ARC-elasticity (midpoints formula) between the two products is -2.
B. the cross-price ARC-elasticity (midpoints formula) between the two products is -½.
C. the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
D. the cross-price ARC-elasticity (midpoints formula) between the two products is 2.
Demand
10. The long-run price elasticity of demand for a product is generally _________ the short-run elasticity for the same product.
A. lower than
B. equal to
C. higher than
D. not comparable to
11. Assume the demand function for skin care products is given by Q = 1,000 – 20 P + 5I. If P=$25 and I=$1,000 currently, then:
A. skin care products are a normal good.
B. the elasticity of demand is equal to 11.
C. skin care products are inferior.
D. The price is too high
12. If the demand for product A displays high and positive cross-price elasticity with respect to the price of product B, then:
A. the demand for product A is likely to have a low price elasticity.
B. products A and B are substitutes.
C. products A and B are complements
D. the demand for product B is likely to have a low price elasticity.
13. Assume Pyrotex Inc. estimates the demand for its fireworks to be linear. If the current price charged by Pyrotex is such that the elasticity of demand is equal to 2.5, which of the following statements is true?
A. Pyrotex will surely increase its profits by decreasing the price of fireworks.
B. Pyrotex will surely increase its profits by increasing the price of fireworks.
C. Pyrotex cannot increase its profits by changing the price of fireworks.
D. Not enough information is provided to determine whether Pyrotex is currently maximizing its profits.
14. Sales of shampoo by CleanHair, Inc. have recently decreased from 1,300 to 1,100 units in response to a price decrease from $7 to $5 by its main competitor. Assuming that everything else is being held constant, we can infer that:
A. the cross-price ARC-elasticity (midpoints formula) between the two products is -2.
B. the cross-price ARC-elasticity (midpoints formula) between the two products is -½.
C. the cross-price ARC-elasticity (midpoints formula) between the two products is ½.
D. the cross-price ARC-elasticity (midpoints formula) between the two products is 2.