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Q: micro. ( Answered,   0 Comments )
Subject: micro.
Category: Business and Money > Economics
Asked by: k9queen-ga
List Price: $20.00
Posted: 30 Sep 2003 09:58 PDT
Expires: 30 Oct 2003 08:58 PST
Question ID: 261563
16)IF the price elasticity of demand for a product is equal to 0.5,
then a 10 percent decrease in price will:
a)increase quantity demanded by 5 percent.
b)increase quantity demanded by 0.5 percent.
c)decrease quantity demanded by 5 percent.
d)decrease quantity demanded by 0.5 percent.

17)In some markets consumers may buy many different brands of product.
 Which of the statements below best represents a situation where
demand for a particular brand would be very elastic?
a)the different brands are almost identical. I always buy the
b)I use so little of that product that when I do buy it, I don't pay
much attention to price.
c)The brand I buy is so superior to other available brands that I
hardly consider the others.
d) I pinch pennies in buying other products, but like most people I
feel I owe it to myself to get the best brand of this product.

18)In which instances will total revenue decline?
a)price rises and the elasticity of demand equals .41
b)price rises and demand is of unit elasticity
c)price falls and demand is elastic
d) price rises and the elasticity of demand equals 2.47

19)The demand for cheerios cereal is more price-elastic than the
demand for cereals as a whole.  This is best explained by the fact
a)cheerios are a luxury
b)cereals are a necessity
c)there are more substitutes for cheerios than cereals as a whole
d)consumption of cereals as a whole is greater than consumption of

20)The elasticity coefficients of demand are 2.6, .5, 1.4, and .18 for
demand schedules D1, D2, D3, and D4.  A 2 percent increase in price
will result in an increase in total revenues in the cases of:
a)D1 and D3
b)D1 and D4
c) D2 and D4
d)D1, D2, and D3
Subject: Re: micro.
Answered By: wonko-ga on 30 Sep 2003 11:26 PDT
16. c) decrease quantity demanded by 5%.  A price elasticity of demand
less than one means that when price declines, total revenue declines. 
"The elasticity coefficient is percentage change in quantity demanded
divided by percentage change in price."  (page 744)  So, the change in
quantity demanded equals 0.5 (-10%) = -5%.

17. a) the different brands are almost identical.  I always by the
cheapest.  This implies there are lots of substitutes, leading to a
high price elasticity.  The other three answers describe
price-inelastic behaviors.

18. d) price rises and the elasticity of demand equals 2.47.  A demand
elasticity greater than one in absolute value "...signifies that the
percentage change in quantity demanded his greater than the percentage
change in price."  (page 744) therefore, when price rises, total
revenues will decline with a demand elasticity greater than one.

19. c) there are more substitutes for Cheerios than cereals as a
whole.  Products with more substitutes have higher price elasticities.
 (page 70)

20. c) D2 and D4.  A price increase results in an increase in total
revenues when demand is price inelastic.  Price inelastic demand is
"the situation in which price elasticity of demand is below 1 in
absolute value."  (page 744)  D2 and D4 are the only demand schedules
with elasticity coefficients less than one.



Source: "Economics" 14th edition by Samuelson & Nordhaus, McGraw-Hill
Inc., 1992
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