Question 1

Gold buyers are located in New York and Zurich. If the price of gold is $400 an ounce, the worldwide demand for gold is 10,000 ounces. Also, the price elasticity of demand for gold in New York and Zurich are -3 and -2 respectively. If the slope of each demand curve in New York is the same as in Zurich, then the quantity of gold demanded by dealers in Zurich is

Accepted Answer

The price elasticity of demand formula is used to determine the quantity demanded in Zurich. Given the elasticity in Zurich is -2, and the total demand is 10,000 ounces, the demand in Zurich is 6,000 ounces.

Question 2

Many governments around the world attempt to improve the incomes of commodity producers by taking steps to increase the commodity price in the domestic market. Although this may reduce quantity demanded for the product, the action may be effective because:

Accepted Answer

Commodity demand tends to be inelastic, meaning that consumers do not significantly reduce their quantity demanded when prices increase, leading to higher sales revenue for producers.

Question 3

Microsoft wants to calculate the effect of a worldwide 5% price cut on its sales of Excel to clients in different countries. Microsoft sells Excel at different prices in U.S., Japan and Europe. Before the price cut U.S. sales were twice sales in Japan and Europe. If the price of elasticity of demand in the U.S., Japan and Europe are -3, -4, and -2 respectively, the worldwide sales rise by

Accepted Answer

The answer of Microsoft wants to calculate the effect of...

Question 4

Suppose the aggregate demand for housing in the U.S. includes a substantial speculative component. What happens of the expectations of speculators change, and they believe housing prices will not increase in the future?

Accepted Answer

If the expectations of speculators change and they believe housing prices will not increase in the future, this means that there is a decrease in the speculative component of demand, which is a shift to the left in the aggregate demand curve. This shift will result in a decline in the equilibrium market price, as the quantity demanded at the previous price level decreases.

Question 5

Harding Enterprises has developed a new product called the Gillooly shillelagh. The market demand for this product is given as follows:
Q = 240 - 4P
a. If the shillelagh is priced at $40, what is the point price elasticity of demand? Is demand elastic or inelastic?
b. If the shillelagh price is increased slightly from $40, what will happen to the total expenditure on the Gillooly shillelagh?

Accepted Answer

The answer of Harding Enterprises has developed a new product...

Question 6

Answer both parts of the following question.
a. The San Francisco Chronicle reported that the toll on the Golden Gate Bridge was raised from $2 to $3. Following the toll increase, traffic fell by 5 percent. Based on this information, calculate the point price elasticity of demand. Is demand elastic or inelastic? Explain.
b. Stephen Leonoudakis, chairman of the bridge's finance auditing committee, warned that the toll increase could cause toll revenues to decrease by $2.8 million per year. Is this statement consistent with economic theory? Explain.

Accepted Answer

The answer of Answer both parts of the following question.
a....

Question 7

To determine whether an increase in the price of gasoline results in a consumer spending a larger share of their expenditure on gasoline we need to know

Accepted Answer

To determine whether an increase in the price of gasoline results in a consumer spending a larger share of their expenditure on gasoline, we need to know the own price elasticity of demand for gasoline. This tells us how responsive consumers are to changes in the price of gasoline and whether they will adjust their consumption of it in response to a price increase. If the own price elasticity of demand for gasoline is elastic, then consumers will likely reduce their consumption in response to a price increase, resulting in a smaller share of their expenditure being spent on gasoline. If the own price elasticity of demand for gasoline is inelastic, then consumers will not make significant adjustments to their consumption, resulting in a larger share of their expenditure being spent on gasoline. Therefore, D is the best choice.

Question 8

The table below lists the demand curve for sleeves of tennis balls for each member of the Parker family. Use this information to determine the Parker's aggregate family demand for tennis balls. What is the price elasticity of demand for each member of the family at $2.00? What is the price elasticity of family aggregate demand at $2.00?

Accepted Answer

The answer of The table below lists the demand curve...

Question 9

There are two types of people that live on planet Economus. The Utility function of each type is given in the table.
  
Derive the demand curves for each type. Everyone on the planet has $1,000 of income per period and there are 100 individuals of type I and 100 individuals that are type II. Derive the market demand curve for each good.

Accepted Answer

The answer of There are two types of people that...

Question 10

The demand curves for gold in New York and Zurich can both be represented by a line with negative slope, -b. When the price is zero the demand for gold is x ounces higher in New York than in Zurich. At the current price of gold the price elasticity of demand for gold in New York and Zurich is -3 and -4 respectively. The value of x equals

Accepted Answer

When the price is zero, the demand for gold in New York is x ounces higher than in Zurich. This means that the intercept of the demand curve for gold in New York is x ounces higher than the intercept of the demand curve for gold in Zurich.The price elasticity of demand for gold in New York and Zurich is -3 and -4 respectively. This means that the demand for gold in New York is more elastic than the demand for gold in Zurich.The value of x is equal to a quarter of the current demand for gold in New York. This is because the intercept of the demand curve for gold in New York is x ounces higher than the intercept of the demand curve for gold in Zurich, and the demand for gold in New York is more elastic than the demand for gold in Zurich.

Question 11

Sally Henin has a price elasticity of demand for gasoline of -0.8. Her income elasticity for gasoline is 0.5. Sally's current income is $40,000 per year. Sally currently spends $800 per year on gasoline. The price of gasoline is currently $1.00 per gallon.
a. A contemplated excise tax on gasoline will cause the price of gasoline to rise to $1.40. What impact will the tax have on Sally's consumption of gasoline?
b. Since the purpose of the tax is only to discourage gasoline consumption, Congress is considering a $200 income tax rebate to lessen the burden of the gasoline tax. What impact will the rebates have on Sally's consumption of gasoline?
c. Assume that both the tax and rebate are implemented. Will Sally be worse off or better off?

Accepted Answer

The answer of Sally Henin has a price elasticity of...

Question 12

The point price elasticity of demand for red herring is -4. The demand curve for red herring is: Q = 120 - P. What is the price of red herring?

Accepted Answer

The point price elasticity of demand formula is (dQ/dP) * (P/Q). Given elasticity is -4, and the demand curve is Q = 120 - P, so dQ/dP = -1. Substituting these into the elasticity formula: -4 = (-1) * (P/(120-P)). Solving for P gives P = $96.

Question 13

Joe's Pig Palace sells barbecue plates for $4.50 each, and serves an average of 525 customers per week. During a recent promotion, Joe cut his price to $3.50 and observed an increase in sales to 600 plates per week.
a. Calculate Joe's arc price elasticity of demand.
b. Joe is considering permanently lowering his price to $4.00 to increase revenue. How many plates should Joe expect to sell at the new price? Does the move make sense in the light of Joe's desire to increase revenue?

Accepted Answer

The answer of Joe's Pig Palace sells barbecue plates for...

Question 14

The demand for telephone wire can be expressed as:
Q = 6000 - 1,500P,
where Q represents units, in pounds per day, and P represents price, in dollars per pound. Determine the price elasticity of demand at P = $2.00 per pound.

Accepted Answer

The answer of The demand for telephone wire can be...

Question 15

Suppose your manufacturing firm is not a price-taking seller (i.e., has some control over your product price) and sells machinery to U.S. (domestic) buyers as well as foreign buyers. The domestic demand for your product is inelastic but the foreign demand is elastic, and the machinery is bulky so that the high transport costs prevent resale among the buyers. You could charge both groups of buyers the same price for the machinery, but you know that you could increase total sales revenue by charging the domestic buyers a ________ price and charging the foreign customers a ________ price.

Accepted Answer

Since the domestic demand is inelastic, a higher price could be charged without significant loss of sales. Meanwhile, the foreign demand is elastic, meaning that a higher price would likely result in a significant loss of sales. Therefore, charging the domestic buyers a higher price and the foreign buyers a lower price would maximize total sales revenue.

Question 16

General Motors estimates that U.S. demand for its newest product will be: Qus = 30,000 - 0.5P. Export demand will be Qex = 25,000 - 0.5P. The total market demand curve for this product will be a

Accepted Answer

The answer of General Motors estimates that U.S. demand for...

Question 17

Suppose that the demand for artichokes (Qa) is given as:
Qa = 120 - 4P
a. What is the point price elasticity of demand if the price of artichokes is $10?
b. Suppose that the price of artichokes increases to $12. What will happen to the number of artichokes sold and the total expenditure by consumers on artichokes?
c. At what price if any is the demand for artichokes infinitely elastic?

Accepted Answer

The answer of Suppose that the demand for artichokes (Qa)...

Question 18

Consider the following statements when answering this question.
I. If no consumer has a kinked demand curve for CDs, then the market demand curve for CDs cannot be kinked either.
II. If at a price of $10, every consumer has inelastic demand, then at that price the market demand for CDs will be inelastic too.

Accepted Answer

The answer of Consider the following statements when answering this...

Question 19

Recent research estimates that the short-run price elasticity of demand for gasoline in the U.S. is -0.3, and the long-run price elasticity of demand is -1.4. What happens if the govenment increases the federal gasoline tax?

Accepted Answer

In the short run, demand is inelastic (-0.3), so expenditures increase as price rises. In the long run, demand is elastic (-1.4), so expenditures decrease as consumers reduce quantity demanded.

Question 20

The world demand for power transmission wire is made up of both domestic and foreign demands. Thus, the total demand is the sum of the two sub-demands, which are given as:
Domestic demand: Pd = 5 - 0.005Qd
Foreign demand: Pf = 3 - 0.00075Qf,
where Pd and Pf are in dollars per pound, and Qd and Qf are in pounds per day.
a. Determine the world demand for power transmission wire.
b. Determine the prices at which domestic and foreign buyers would enter the market.
c. Determine the domestic and foreign quantities at P = $2.50 per pound. Check to see if the sum of Qd and Qf equals Q.
d. Determine total rate of purchases at P = $4.00 per pound.

Accepted Answer

The answer of The world demand for power transmission wire...

Quiz 4: Individual and Market Demand