Choose the correct multiple choice answer for each of the following questions. Provide a brief (40-50 words) answer to defend your choice. If the question is quantitative, show each step of your computations.
1. The Interior Department recently announced that it will increase the entrance fees at Yellowstone National Park in order to increase park revenues. The Interior Department must believe that:
A. Demand is elastic.
B. Demand is inelastic.
C. Demand is unitary elastic.
2. If the price elasticity of DVD recorders is -0.325 and price decreases 20%, what happens to the quantity of DVD recorders demanded?
A. Quantity decreases by 26%
B. Quantity decreases by 15%
C. Quantity increases by 6.5%
D. Quantity increases by 21%
Questions 3 through 9, refer to the following table showing a demand schedule:
Price Quantity Demanded
$400 600
$350 1200
$200 1800
3. If price rises from $200 to $350, what is the elasticity of demand over this range?
A. -0.73
B. -1.0
C. -1.17
D. -0.44
E. -3.0
4. As output increases from 600 to 1,200 what is marginal revenue?
A. $25
B. $300
C. $600
D. -$25
E. -$600
5. If price falls from $350 to $200,
A. Arrows representing the price and quantity effects both point down.
B. An arrow representing the price effect points down and is longer than an arrow for the quantity effect.
C. An arrow representing the price effect points down and is shorter than an arrow for the quantity effect.
D. Arrows representing the price and quantity effects both point up.
E. Total revenue moves in the same direction as the arrow representing the quantity effect.
6. If price rises from $350 to $400, what is the elasticity of demand over this range?
A. -0.625
B. -1.0
C. -1.67
D. -0.07
E. -5.0
7. As output rises from 1,200 to 1,800, what is marginal revenue?
A. $25
B. $50
C. $400
D. -$100
E. -$75
8. If price falls from $400 to $350,
A. Arrows representing the price and quantity effects both point down.
B. An arrow representing the price effect points down and is longer than an arrow for the quantity effect.
C. An arrow representing the quantity effect points up and is shorter than an arrow for the price effect.
D. Arrows representing the price and quantity effects both point up.
E. Total revenue moves in the same direction as the arrow representing the quantity effect.
9. If price falls from $400 to $350,
A. Arrows representing the price and quantity effects both point up.
B. An arrow representing the price effect points up and is shorter than an arrow for the quantity effect.
C. Total revenue moves in the same direction as the arrow representing the price effect.
D. The arrow representing the price effect points down and the arrow representing the quantity effect points up.
E. Both c and d
10. Suppose that a store's management is considering a plan in which customers who donate blood get a $20 gift card. If both store REVENUES and blood donations (i.e., number of pints donated) rise with this plan, which of the following is true? Be sure to explain your reasoning.
A. The demand for blood is price elastic.
B. The demand for blood is price inelastic.
C. The demand for the store's products is price inelastic.
D. The demand for the store's products is price elastic.