1. When a 20% change in price causes a change in quantity demanded less than 20% percent, demand for the product is  

a. elastic.  b. inelastic.  c. perfectly elastic.  d. unitary elastic.

2. Suppose you used a statistical technique and estimated a demand function for Starbucks coffee. The demand function is given by Qd = 100 –0.5*P - 4*PM + 0.001*Income, where Qd is the quantity of coffee sold per day, and P is the price of Starbucks coffee, and PM is the price of McDonald’s coffee. Regarding this equation, which of the coefficient has the wrong sign according to your knowledge?

a. the coefficient of P has the wrong sign.

b. the coefficient of PM has the wrong sign.

c. the coefficient of Income has the wrong sign.

d. all coefficients make economic sense.

3. Suppose you used a statistical technique and estimated a demand function for Starbucks coffee. The demand function is given by Qd = 100 – 0.5*P + PM + 0.001*Income, where Qd is the quantity of coffee sold per day, and P is the price of Starbucks coffee, and PM is the price of McDonald’s coffee. Suppose P=$2, PM=$1, and Income = $50,000. Which of the following statement is correct?

a. the price elasticity of demand for Starbucks coffee is elastic

b. the price elasticity of demand for Starbucks coffee is inelastic

c. Starbucks coffee has a unit elasticity.

d. Starbucks coffee is an inferior good

e. none of the above is correct.

4. A firm uses two inputs (call them “computers” and “programmers”) in production. The combination of computers and programmers minimizes its total cost when

a. the price of the two inputs are equal.

b. the marginal product of computer and the marginal product of programmer are equal.

c. the ratio of the marginal product of computers over the marginal product of programmers equals the ratio of the wages of programmers over the price of computers.

d. the ratio of the marginal product of computers over the price of computers equals the ratio of the marginal product of programmers over the wage of programmers.