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Exam 4: Demand Theory

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Question 21

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The bandwagon effect tends to make the market demand curve flatter than the horizontal summation of individual demand curves.

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Question 22

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The demand function for a product is defined as Q = 24 - 2P. If price is equal to 4, then the price elasticity of demand is

A) elastic.
B) unit elastic.
C) inelastic.
D) There is not enough information to determine the answer.

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Question 23

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If an increase in the price of one commodity leads to an increase in the demand for a second commodity, then the two commodities are complements.

Which of the following is not a determinant of a consumer's demand for a commodity?

The demand function for a good is defined as Q = 20 - 1.5P + 0.2I, where I is a measure of consumer income. Calculate the price elasticity of demand using the point formula for P = 16 and I = 110. Determine whether demand is elastic, inelastic, or unit elastic with respect to its own price and whether the good is normal or inferior and whether it is a luxury or a necessity.

The price elasticity of demand for a firm's product is equal to -1.8. The firm currently sells 4,000 units per day at a price of $2. If the firm increases its product price by 10 percent, then it can expect to sell approximately

The demand function for Good X is defined as Q_X = 75 - 2P_X - 1.5P_Y, where P_Y is the price of Good Y. Calculate the price elasticity of demand using the point formula for P_X = 20 and P_Y = 10. Determine whether demand is elastic, inelastic, or unit elastic with respect to its own price and whether Good Y is a substitute or a complement with respect to Good X.

Which of the following will not decrease the demand for a commodity?

A firm has kept track of the quantity demanded of its output during four time periods. Product price, consumer income, and advertising expenditures were also recorded for each time period. The information is provided in the table that follows. Use it to calculate the arc elasticity of demand with respect to price, income, and advertising. $\begin{array} { l l l l l } \text { Time Period } & 1 & 2 & 3 & 4 \\\text { Quantity } & 120 & 80 & 100 & 80 \\\text { Price } & 20 & 30 & 30 & 30 \\\text { Income } & 150 & 150 & 250 & 250 \\\text { Advertising } & 50 & 50 & 50 & 30\end{array}$

If a firm raises its price by 7 percent and total revenue increases, then

Assume that there are 50 identical individuals with a demand schedule for good X indicated below. Compute the market demand schedule and draw market demand curve for good X. $\begin{array} { | l | l | l | l | l | l | l | } \hline \mathrm { P } & 10 & 20 & 30 & 40 & 50 & 60 \\\hline \mathrm { Qx } & 35 & 30 & 25 & 20 & 15 & 10 \\\hline\end{array}$

The substitution effect holds that an increase in the price of a commodity will cause an individual to search for substitutes.

Electronic commerce is a significant market channel for the sale of

Firms in an industry that produces a differentiated product

When consumers develop a taste for a particular brand-name product, the demand for that product becomes relatively less price sensitive

The demand for an individual firm's output depends on the demand for the industry's output, the number of firms in the industry, and the structure of the industry.

If the consumption decisions of individual consumers are independent, then

The law of demand refers to the

The demand function for a product is defined as Q = 24 - 2P. If price is equal to 6, then the price elasticity of demand is

The demand function for a good is defined as Q = 50 - P. Calculate the price elasticity of demand using the point formula for P = 25 and determine whether the demand is elastic, inelastic, or unit elastic.