#1
2. Which of the following is considered an elastic good?
Gasoline
ExplanationSensitive to price changes, with a high elasticity.
#2
5. Which pricing strategy involves setting a high initial price to capture early adopters and then gradually lowering the price?
Skimming pricing
ExplanationIntroducing a product with a high price and later reducing it for wider adoption.
#3
10. Which of the following is a characteristic of monopolistic competition?
Many sellers, differentiated products.
ExplanationMarket structure with numerous sellers offering differentiated products.
#4
13. What is a characteristic of a perfectly competitive market?
Many buyers and sellers.
ExplanationMarket with numerous buyers and sellers, homogeneous products.
#5
15. What is the primary goal of a firm following the profit maximization principle in microeconomics?
Maximizing total revenue.
ExplanationAchieving the highest total revenue to maximize profits.
#6
19. What is the purpose of a price floor in a market?
To prevent prices from falling below a certain level.
ExplanationSetting a minimum price to avoid prices dropping too low.
#7
1. What is price elasticity of demand?
The percentage change in price divided by the percentage change in quantity demanded.
ExplanationMeasure of responsiveness of quantity demanded to price changes.
#8
4. When demand is inelastic, what happens to total revenue when prices increase?
Total revenue increases.
ExplanationInelastic demand causes total revenue to rise with price increases.
#9
6. What is the cross-price elasticity of demand?
The percentage change in quantity demanded of one good divided by the percentage change in the price of another good.
ExplanationMeasure of how the quantity demanded of one good responds to a change in the price of another.
#10
8. What is the income elasticity of demand for normal goods?
Positive
ExplanationNormal goods have a positive income elasticity, meaning demand rises with income.
#11
12. Which factor does NOT affect the price elasticity of demand?
Number of producers in the market.
ExplanationPrice elasticity is independent of the number of producers.
#12
14. Which pricing strategy focuses on setting prices just below even-dollar or even-euro amounts?
Odd pricing.
ExplanationSetting prices slightly below round figures for psychological impact.
#13
3. What is the relationship between price elasticity and total revenue?
They move in opposite directions.
ExplanationElastic demand decreases total revenue when price increases, and vice versa.
#14
7. In which scenario is a perfectly elastic demand curve likely to occur?
Luxuries with many substitutes.
ExplanationGoods with numerous alternatives and high elasticity.
#15
9. When might a company use price discrimination as a pricing strategy?
To maximize profits by charging different prices to different customer groups.
ExplanationCharging varying prices to different customer segments for profit maximization.
#16
11. What does the price elasticity value of -0.75 indicate?
Relatively elastic demand.
ExplanationElastic demand, but less responsive to price changes.
#17
16. If the cross-price elasticity of demand is negative, what can be inferred about the two goods?
They are complements.
ExplanationGoods with a negative cross-price elasticity are complementary.
#18
20. In a monopolistic market, what is the relationship between price and quantity sold?
Price is directly related to quantity sold.
ExplanationHigher prices lead to a decrease in quantity sold in monopolistic markets.