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21 Apr 2019

Part 3: Questions requiring a quantitative answer

Note: All but the last blank are worth 3 points. The last blank in Question 3 is worth 4 points.

1. Suppose HEB sells 2,500 pounds of chicken a week at $3.00 per pound
and is considering raising its prices by 10 percent. The own price elasticity of chicken is –0.41. Given this information:

How many pounds of chicken will
HEB sell if it raises the price? _______.

HEB’sweeklyrevenueaftertheprice increase will be $_____________.

This represents a change in weekly revenue of $_________.

Consumers will be ___________ off as a result of this price change.

Is chicken considered a normal good or an inferior good?___________________ ________________________________.

2. SupposeHEBdoesnotraiseitsprice
and currently sells 2,500 pounds of chicken at $3.00 a week. Assume Kroger located just down the street, however, decides to cut its price of chicken by 10 percent. Assume the elasticity of HEB chicken with respect to the price of Kroger chicken is 0.80. Given this information:

WhatimpactwillKroger’spricecuthaveon the amount of chicken sold weekly by HEB? ______________ pounds.

What impact will this have on HEB’s weekly revenue? $ __________.

What is the new level of revenue at Kroger’s as a result of the price cut? $____________ _________.

3. Assumetheincomeelasticityofdemand
for HEB chicken is 0.60 and it is currently selling 2,500 pounds of chicken a week at $3.00 a pound. Further assume that neither HEB or Kroger raise their prices. If the government, however, raises taxes, thereby lowering consumer disposable income by 5 percent,

How many pounds of chicken will HEB
sell as a result of this tax increase? _______

What impact will this have upon the weekly revenue at HEB? $___________ ___________________

What impact will this have on quantity of chicken sales at Kroger’s? ___________ ________________________________

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Related questions

Michael spends all of his income on coffee and donuts. A coffee costs $2.50 and a donut costs $2.00. At his current consumption level, the marginal utility for coffee is 30 utils, and the marginal utility for a donut is 60 utils. Which statement best describes what Michael needs to do to maximize his utility?

Question 1 options:

1)

buy less of both coffee and donuts.

2)

buy less coffee and more donuts.

3)

buy more coffee and less donuts.

4)

spend the same amount on coffee as he does on donuts.

Question 2

What is it called when the marginal utility derived from the last dollar spent on each good is the same across all goods and the last dollar spent uses all of the available budget for the purchase of those goods?

Question 2 options:

1)

the optimal consumption bundle.

2)

the optimal production bundle.

3)

diminishing marginal utility.

4)

optimal point.

Question 3 (1 point)

What does the economic theory of marginal utility infer?

Question 3 options:

1)

consumers naturally know which consumption choices will maximize their utility.

2)

consumers who watch market trends are better at maximizing their utility than are those who do not watch those trends.

3)

one cannot maximize utility without taking an economics class that explains utility theory.

4)

one cannot maximize utility without doing the math of calculating the ratios of marginal utility divided by price.

Question 4

Kate is addicted to chocolate and does not care how much it costs. In fact, she spends more than $20 a week on chocolate. What can be concluded about elasticity in her buying decisions?

Question 4 options:

1)

Her income elasticity of demand for chocolate is equal to one.

2)

Her income elasticity of demand for chocolate is equal to zero.

3)

Her price elasticity of demand for chocolate is equal to one.

4)

Her price elasticity of demand for chocolate is equal to zero.

Save

Question 5 (1 point)

Why does the demand for a good become relatively more elastic?

Question 5 options:

1)

substitutes for the good become more available.

2)

substitutes for the good become less available.

3)

the good becomes more of a necessity.

4)

the time allowed for adjustment is shortened.

Save

Question 6 (1 point)

Assume the price of chicken per pound is $3.49 and that Americans purchase 10 million pounds per chicken every month. If the price of chicken increases to $5.49 per pound, identify what will occur to consumer surplus?

Question 6 options:

1)

consumer surplus increases.

2)

consumer surplus decreases.

3)

consumer surplus creates incentive to save.

4)

consumer surplus creates incentive to spend.

Question 7 (1 point)

What is another name for the difference between the price that consumers are willing to pay for a good and a lower price that they may actually have to pay?

Question 7 options:

1)

profit.

2)

revenue.

3)

consumer utility.

4)

consumer surplus.

Question 8

Adam, Brian, Robert, and Sam all want to attend a football game. The admission price is $48. Adam is willing to pay $59 for the ticket. Brian is willing to pay $39. Robert is willing to pay $45, and Sam is willing to pay $55. Based on this information, who will go to the game?

Question 8 options:

1)

Adam, Brian, Robert, and Sam.

2)

Brian and Robert.

3)

Adam and Sam.

4)

Brian, Robert, and Sam.

Save

Question 9 (1 point)

Lily is willing to pay $10 for one bracelet and $5 for a second. Patty is willing to pay $12 for one bracelet and $2 for a second. If the price is currently $8 per bracelet, identify what is the total consumer surplus after Lily and Patty make their purchases?

Question 9 options:

1)

$8

2)

$6

3)

$7

4)

$5

Question 10 (1 point)

Manfred is willing to shovel one driveway for $25, a second for $30, and a third for $35. Assume that the market rate for shoveling driveways is $32. How many driveways will Manfred shovel, what will be his total revenue, and what will be his producer surplus?

Question 10 options:

1)

Manfred will shovel two driveways for a total revenue of $64 and his producer surplus will be $9.

2)

Manfred will shovel three driveways for a total revenue of $75 and his producer surplus will be $12.

3)

Manfred will shovel three driveways for a total revenue of $96 and his producer surplus will be $5.

4)

Manfred will shovel four driveways for a total revenue of $125 and his producer surplus will be $18.

Save

Question 11 (1 point)

What would the difference between the price that producers receive and the lower price at which they are willing to sell the good be called?

Question 11 options:

1)

producer shortage.

2)

producer surplus.

3)

consumer shortage.

4)

consumer surplus.

Save

Question 12 (1 point)

What will happen when there is an increase in the price of eBook downloads?

Question 12 options:

1)

It reduces the marginal utility derived from each dollar spent on eBooks.

2)

It reduces the marginal utility derived from each hardcopy book purchased.

3)

There will not be a substitution effect.

4)

There will not be a change in the number of eBooks in the set of consumption possibilities.

Save

Question 13 (1 point)

When is price elasticity of demand utilized to measure how an individual changes the quantity they demand?

Question 13 options:

1)

when supply changes.

2)

when product quality changes.

3)

when marketing changes.

4)

when price changes.

Save

Question 14 (1 point)

Assume Mary consumes only tea and pastries. A cup of tea costs 5 euros and a pastry costs 8 euros. Her weekly income is 450 euros. Mary always drinks 2 cups of tea for every pastry she consumes. What is Mary’s optimal weekly consumption bundle?

Question 14 options:

1)

25 cups of tea and 50 pastries.

2)

50 cups of tea and 25 pastries.

3)

58 cups of tea and 20 pastries.

4)

60 cups of tea and 30 pastries.

Save

Question 15 (1 point)

When is producer surplus a positive value?

Question 15 options:

1)

the price the producer is willing to charge equals the market price.

2)

there is no tax applied to the good.

3)

the price the producer is willing to charge is less than the market price.

4)

the price the producer is willing to charge is greater than the market price.

1. To establish a market, which of the following are essential?

1. A marketplace or a location

2. Potential buyers

3. An auctioneer

4. Potential sellers

A. 1, 2 and 4

B. 1, 2, 3, and 4

C. 1 only

D. 2 and 4

E. None of the above

 

2. Marketing value is:

A. The share of consumer food expenditures going to farmers

B. The share of consumer food expenditures going only to processors

C. The share of consumer food expenditures going to agribusinesses

D. The share of consumer food expenditures going only to marketers

E. None of the above

 

3. Micropolitan area contains:

A. One urbanized area of at least 10,000 but less than 50,000 people

B. One urbanized area of at least 20,000 but less than 50,000 people

C. One urbanized area of at least 30,000 but less than 50,000 people

D. One urbanized area of at least 40,000 but less than 50,000 people

E. None of the above.

 

4. Which of the following does not belong to  Maslow's hierarchy of needs?

A. Self-actualization

B. Political views

C. Esteem

D. Love/belonging

E. Physiological

 

5. The process of identifying and focusing on target submarkets is known as:

A. Market collusion

B. Market targeting

C. Market segmentation

D. Market development

E. None of the above

 

6. Given the following information concerning elasticities for bubble gum:

Own-price elasticity of demand = -0.3

Own-price elasticity of supply = 1.7

Income elasticity = 0.6

Cross-price elasticity concerning chewing gum = -1.5,

then bubble gum demand is ___ and it is a ___ good.

A.Unitary elastic; inferior

B.Inelastic; inferior

C. Elastic; inferior

D. Inelastic; normal

E. Elastic; normal

 

7. The cross-price elasticity for peanut butter demand with respect to the price of jelly is equal to -0.8. If the price of jelly decreases by 10%, the consumption of peanut butter will:

A. Decrease by 8%

B. Decrease by 1.25%

C. Increase by 1.25%

D. Increase by 8%

E. None of the above

 

8. The percentage change in quantity demanded of a commodity or product given a 1% change in income is captured by:

A. Own-price elasticity of demand

B. Cross-price elasticity

C. Own-price flexibility

D. Own-price elasticity of supply

E. Income elasticity

 

9. The most important determinant of supply elasticity is:

A. Length of time

B. Degree of substitutability

C. Degree of complementarity

D. Importance in the budget

E. Luxury versus necessity

 

10. Assume that a retailer sells 2,000 six-packs of Pepsi per day at a price of $3.00 per six-pack. Also, assume the cross-price elasticity for Pepsi with respect to the price of Coca Cola is 0.5. If the price of Coca Cola rises by 10 percent, what will be the new quantity of six-packs sold by Pepsi?

A. 1,000

B. 2,100

C. 2,400

D. 12,000

E. None of the above

John Smith, C.E.O. of A.B.Co., is attempting to estimate the quantity of his product that will be demanded during April. At the current price of $20.00, A.B. Co. is selling 100,000 units per month. Mr. Smith has been informed that on April 1st, Delta Co., a producer of a substitute good, will be decreasing the price of its product by 10%. Given a cross elasticity of 2 and the following information, answer the following questions. For this problem, you may use the definition of elasticity to forecast quantity even.

MC = $4

Current Advertising Budget $200,000

A) How many units can Smith expect to sell during April, and by how much will his profits be affected? (4 points each)

B)  If Mr. Smith wants to maintain his current sales of 100,000 units, to what level should he change his price? (Assume Ep = -4) (3 points)

C) At this new price for his product profits will change by how much from part A? (4 points)

D) An alternative strategy for lowering his price to restore his sales volume to 100,000 units would be to increase advertising expenditures. Given an Advertising elasticity of 0.5. How much should advertising expenditures be changed to restore his sales to 100,000 units? (4 points)

E) Given your answer to D, what will be the change in his level of profits from part A? (3 points)

F) Which alternative would you favor if profit is the most important variable to Mr. Smith? (1 point)

NOTE: When you are asked to forecast a quantity resulting from a change in a variable, you may use the definition of elasticity, the easy method, to derive the forecast for all problems. Using the definition is less accurate than using the elasticity formula but much easier mathematically.

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