# Consider the following linear demand function where qd = quantity

Question 3

Consider the following linear demand function where QD = quantity demanded; P = selling price.

QD = 60 – 4P

The price elasticity of demand associated with P=10

−4.00

−2.00

–1.33

–0.67

Question 4

A simple linear regression function, Y = 20 − 0.05X, where Y denotes the sales of gas (x 1,000 gallons) and X denotes the gas price ($ per gallon). We can estimate that one-dollar increases in gas price will decrease the sales by

5,000 gallons

50 gallons

0.05 gallons

15,000 gallons

Question 5

In general, which of the following methods is the most costly and risky in estimating market demand?

Consumer surveys

Market experiments

Statistical demand analysis

Consumer focus group

Question 6

Economic profit is defined as the difference between total revenue and

explicit cost.

total economic cost.

implicit cost.

shareholder wealth.

Question 7

If the current price elasticity of demand for product X is −1.2, a 10% price cut will result in

12% decrease of quantity demanded.

0.8% increase of total revenue.

12% increase of total revenue.

0.8% increase of quantity demanded.

Which of the following is NOT the factor affecting how elastic a demand is?

Time of adjustment

Availability of close substitutes

Share in budget

Price of the good

Question 9

Which of the following is an example of an implicit cost for a firm?

The value of time worked by the owner.

Any wages and salaries paid to employed.

Rent on property not owned by firm.

Both b and c.

Question 10

Which of the following would increase the supply of corn?

An increase in the price of pesticides.

A decrease in the demand for corn.

A fall in the price of corn.

A decrease in the price of wheat.

Question 11

Mr. Smart still has money in pocket to spend. If only two products are available to him, apple (A) and beef (B); the current marginal utility (MU) and unit price (P) are as the following: MUA=3, MUB=10, PA=$1, PB=$4. In order to maximize his total utility, Mr. Smart should

purchase more beef because its marginal utility is greater than apple’s.

purchase more apples because the marginal utility per dollar is greater than beef’s.

purchase more beef because he likes it.

purchase more apples because the price is very low.

Question 12

A market demand curve

is the horizontal summation of the demand curves of all consumers in the market.

is the sum of the prices consumers are willing to pay at each quantity.

is more unpredictable compared with a consumer’s individual demand.

Both a and c

Question 13

Assume a country’s personal annual income is estimated by the following regression equation: Y= 33,000 + 1,200X − 4,000DG , where X = Working Experience (Years); DG=1, if male; DG=0, if female. Which of the following statement is incorrect?

DG is a dummy variable for gender.

A female with 10 years working experience is supposed to earn $45,000 per year.

A male with 10 years working experience is supposed to earn $41,000 per year.

The regression equation indicates that male dominates in personal annual income.

Question 14

Consider the following linear demand function where QD = quantity demanded; P = selling price; M= disposable income; PR= price of related good:

QD = 60 – 4P

Assume that the current market price is P=10. In order to increase the total revenue, the sales manager should _______ the price.

raise

maintain

cut

freeze

Question 15

Your demand on the 10th edition textbook in this course is quite price-inelastic because

it has no close substitute.

it is expensive.

it is not important.

it takes a whole semester to consume

Question 16

“I like ice cream, but after eating homemade ice cream last night, I want to have something else for desert today.” This statement most clearly reflects

the law of demand.

the law of diminishing returns.

the law of diminishing marginal utility.

the law of increasing costs.

Which of the following is the correct procedure order to obtain a better linear regression function for estimation after Excel operation?

Check r2 (Good fit or not) → F test→ t test

F test→ t test→ Check r2 (Good fit or not)

Check r2 (Good fit or not) → t test→ F test

t test→ F test→ Check r2 (Good fit or not)

Question 18

A price elasticity (ED) of –0.50 indicates that for a ____________ increase in price, quantity demanded will ____________ by ______________.

one percent; increase; 0.50 units

one unit; increase; 0.50 units

one percent; decrease; 0.50 percent

one unit; decrease; 0.50 percent

Question 19

The next 2 questions (19~20) refer to the following:

Assume that an individual consumes two goods X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X and Y are, respectively, $2 and $4.

Units of the Good Total Utility of X Total Utility of Y

1

2

3

4

5

6

7

8 20

38

54

68

80

90

98

104 32

60

84

104

120

132

140

144

If the consumer buys the fourth unit of X,

the marginal utility of the fourth unit is 68 units of satisfaction.

the marginal utility per dollar spent on X is 39.

the marginal utility per dollar spent on X is 7.

the total utility from X is 180.

Question 20

Assume that an individual consumes two goods X and Y. The total utility (assumed measurable) of each good is independent of the rate of consumption of other goods. The prices of X and Y are, respectively, $2 and $4.

Units of the Good Total Utility of X Total Utility of Y

1

2

3

4

5

6

7

8 20

38

54

68

80

90

98

104 32

60

84

104

120

132

140

144

If the consumer has $22 to spend on X and Y, the utility-maximizing bundle is

3X and 4Y.

5X and 3Y.

7X and 2Y.

1X and 5Y.

Question 21

Honda Accord and Toyota Camry

are substitutes. If Toyota Camry’s price rises, then Honda Accord’s market equilibrium price will be likely to ____ and market equilibrium quantity will be likely to ____.

increase; increase

increase; decrease

decrease; decrease

decrease; increase

Question 22

Suppose a company incurs the following costs:

Labor $9,000

Equipment (Capital) $6,000

Materials $7,000

The company owns the building, so it doesn’t have to pay the usual $2,000 in rent. The total economic cost is ______; the total accounting cost is _______.

$17,000; $15,000

$24,000; $17,000

$24,000; $22,000

$17,000; $22,000

Question 23

When we construct a regression function of demand on a product, which of the following should not be considered as an appropriate independent variable?

Unit production cost

Consumers’ income

Price of substitutes

Price of the product

Question 24

When the accounting profit equals the implicit costs, the firm earns

a normal profit.

a positive economic profit.

a zero accounting profit.

a negative accounting profit.

Question 25

The next 4 questions (25~28) refer to the following:

The estimated regression function of demand for a good is

Q = 20 − 0.5P + 0.02M − 0.1PR

where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the price of related good.

The coefficient of P implies that

the function violates the law of demand.

the price elasticity of demand is − 0.5.

if the good’s price increases by 1 then quantity demanded will decrease by 0.5.

the good is an inferior good.

Question 26

The estimated regression function of demand for a good is

Q = 20 − 0.5P + 0.02M − 0.1PR

where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the price of related good.

The coefficient of M implies that

the income elasticity is 0.02.

the good is a normal good.

income is not an important determinant for demand.

if income declines by 1 then quantity demanded will increase by 0.02.

Question 27

The estimated regression function of demand for a good is

Q = 20 − 0.5P + 0.02M − 0.1PR

where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the price of related good.

The coefficient of PR implies that

the good is an inferior good.

the good and the related good are substitutes.

the good and the related good are complements.

the demand on the related good is inelastic.

Question 28

The estimated regression function of demand for a good is

Q = 20 − 0.5P + 0.02M − 0.1PR

where Q is the quantity demanded of the good; P is the price of the good; M is income; PR is the price of related good.

The price elasticity of demand, given P=10; M=100; PR=20, should be

−1.33.

−0.66.

−0.50.

-0.33

Question 29

When the price of Washington apples increases, which of the following change is most unlikely, if all the other factors remain?

Quantity demanded of Washington apples decreases.

Demand on Fuji apples increases.

Supply on apple juice increases.

Quantity supplied of Washington apple increases.

Question 30

For a firm’s decision-making, the principal-agent problem arises when

the principal and the agent have different objectives.

the agent cannot enforce the principal to manage well.

there are too many principals but only few agents.

the agent considers to maximize the firm’s wealth.

Question 31

The ABC Company developed the following quarterly sales forecasting model:

Yt= 5.8 + 0.03t

where Yt = predicted sales ($million) in quarter t; t = 1 (First quarter of 2005), 2 (Second quarter of 2005), 3 (Third quarter of 2005), and so on. Given the model, the sales for the fourth quarter of 2012 are forecasted as.

$6.76 million.

$7.00 million.

$14.20 million.

$15.40 million

• Question 32 of 47

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Question 32

Which of the following is most unlikely to be an appropriate independent variable to construct the market demand on DVD movie rental?

Movie theater box office ticket price.

Number of movie theaters.

Household income level.

Population of movie goers

Question 33

Which of the following will never be negative in economic theory?

Cross-price elasticity

Marginal utility

Income elasticity of demand

Marginal cost

Question 34

A simple linear regression model has the coefficient of determination, r2 =0.81. We can conclude that

the model is not a good fit.

only 19% variation of the dependent variable are determined by other factors not considered in the model.

about 81% of the independent variables can determine the dependent variable.

the independent variable and the dependent variable are not related.

Question 35

Moving along a downward sloping linear demand curve from top to bottom, the point elasticity of demand

is constant everywhere.

becomes more inelastic.

becomes more elastic.

changes randomly

Question 36

The next 3 questions (36~38) refer to the following:

The linear regression equation, Y = a + bX, was estimated. The following computer printout was

obtained:

DEPENDENT VARIABLE: Y R−SQUARE F−RATIO P−VALUE ON F

OBSERVATIONS: 21 0.8662 6.1798 0.0274

VARIABLE PARAMETER

ESTIMATE STANDARD

ERROR

RATIO

P−VALUE

INTERCEPT 7.85 3.19 2.94 0.0008

X 0.36 6.88 −2.46 0.0274

The parameter estimate of a indicates

whenX

is zero, Y is 7.85.

whenX

is zero, Y is 3.19.

whenY

is zero, X is 0.36.

whenY

is zero, X is 6.88

Question 37

The linear regression equation, Y = a + bX, was estimated. The following computer printout was

obtained

DEPENDENT VARIABLE: Y R−SQUARE F−RATIO P−VALUE ON F

OBSERVATIONS: 21 0.8662 6.1798 0.0274

VARIABLE PARAMETER

ESTIMATE STANDARD

ERROR

RATIO

P−VALUE

INTERCEPT 7.85 3.19 2.94 0.0008

X 0.36 6.88 −2.46 0.0274

The parameter estimate of b indicates

X

increases by 0.36 units when Y increases by one unit.

X

decreases by 1 units when Y increases by 0.36 units.

a 10-unit decrease in X results in a 3.6 units decrease in Y.

a 10-unit increase in X results in a 78.5 units increase in Y.

Question 38

The linear regression equation, Y = a + bX, was estimated. The following computer printout was

obtained

DEPENDENT VARIABLE: Y R−SQUARE F−RATIO P−VALUE ON F

OBSERVATIONS: 21 0.8662 6.1798 0.0274

VARIABLE PARAMETER

ESTIMATE STANDARD

ERROR

RATIO

P−VALUE

INTERCEPT 7.85 3.19 2.94 0.0008

X 0.36 6.88 −2.46 0.0274

Assume the default level of significance is at 0.05. The regression equation is considered as ______ for sample and (but) ______ applied significantly for population estimation.

a good fit; can be

not a good fit; can be

a good fit; cannot be

not a good fit; cannot be

Question 39

The following figure shows two demand curves at price = P*.

Which of the following is most likely to explain the shapes of demand curve correctly?

Demand on A is more elastic.

If both A and B represent the same product, then A is for short-run demand and B is for long-run demand.

A has more substitutes.

B has a smaller share in consumers’ expenditure (budget).

Question 40

If both demand and supply were to increase, then the market equilibrium

quantity would fall and price might rise or fall.

quantity would rise and price might fall or rise.

price would fall and quantity might rise or fall.

price would be unchanged and quantity might fall.

Question 41

Diamonds are more expensive than water because

diamonds yield higher total utility.

market does not really reflect water’s value.

diamonds are rare.

diamonds yield higher marginal utility.