Managerial Economics International Edition 3rd Edition by Luke M. Froeb – Test Bank

Managerial Economics International Edition 3rd Edition by Luke M. Froeb – Test Bank

CHAPTER 6

1) In general, the smaller the price elasticity:
a) the smaller the responsiveness of price to changes in quantity.
b) the smaller the responsiveness of quantity to changes in price.
c) the larger the responsiveness of price to changes in quantity.
d) the larger the responsiveness of quantity to changes in price.
ANS: B

2) A price elasticity of demand of 2.3% implies
a) Demand is inelastic
b) Demand is elastic
c) Demand is unitary elastic
d) Demand is perfectly elastic
ANS: B

3) A demand for a product is more inelastic
a) When it has many close substitutes
b) In the long-run
c) When it has many complements
d) None of the above
ANS: C

4) The government decided to reduce taxes on fast-food to increase revenue. The government assumes that fast-food products have
a) An inelastic demand
b) An elastic demand
c) A demand curve that is upward sloping
d) Unitary elastic demand curve
ANS: B

5) If your income goes down by10% and, in response, the quantity demanded of good x falls by 20%, the income elasticity of demand would be:
a) 2
b) 4
c) .5
d) .20
ANS: A

6) As the price of dvds is raised from $3 to $5, their quantity demanded fell from 200,000 to 180,000. The elasticity of demand of dvds is:
a) 0.21
b) 1.28
c) 3.52
d) .65
ANS: A

7) When MR<MC firms should raise their prices because
a) Demand is flat
b) Demand is upright
c) Demand is elastic
d) Demand is inelastic
ANS: D

8) In 2011, Netflix raised prices on its DVDs and internet streaming plan. The Reed Hastings, CEO of Netflix, believes
a) Netflix is an industry leader thereby making the demand curve inelastic
b) Netflix is an industry leader thereby making the demand curve elastic
c) People are willing to pay more for the good
d) There are many substitutes to Netflix’s products
ANS: A

9) Jim has estimated elasticity of demand for gasoline to be 0.7 in the short-run and 1.8 in the long run. A decrease in taxes on gasoline would:
a) lower tax revenue in both the short and long run.
b) raise tax revenue in both the short and long run.
c) raise tax revenue in the short run but lower tax revenue in the long run.
d) lower tax revenue in the short run but raise tax revenue in the long run.
ANS: D

10) For complements, cross price elasticity of demand is:
a) Negative
b) Positive
c) between zero and one only
d) zero.
ANS: A