Module 1 (Customer Demand: Foundations) Flashcards
A jewelry store has a discount for customers who purchase multiple pairs of earrings: after paying full price for one pair of earrings, the second pair is 15% off. John goes to the store and finds a pair of earrings he likes that is sold for $40 per pair, so he purchases two pairs for a total cost of $74. Which of the following MUST be true?
A - John’s willingness to pay for the first pair is no more than $74.
B - John’s willingness to pay for the second pair is at least $34.
C - John’s willingness to pay for the two pairs of earrings is at least $74.
D - John’s willingness to pay for the second pair is lower than his willingness to pay for the first pair.
C - John’s willingness to pay for the two pairs of earrings is at least $74.
Which of the following statements is true?
A - The demand curve is an upward-sloping line which relates price and quantity demanded.
B - If a company that faces a downward-sloping demand curve charges the same price to all its customers, there are usually some customers who are paying less than their willingness to pay.
C - The quantity that corresponds to a particular price on the demand curve tells us the number of people who have that price as their willingness to pay.
D - All of the above
B - If a company that faces a downward-sloping demand curve charges the same price to all its customers, there are usually some customers who are paying less than their willingness to pay.
A product has a price elasticity of demand of 0.6, which means that:
A - Total revenue falls when the price increases.
B - Revenue is unaffected by price changes.
C - Total revenue increases when the price increases.
D - Net profit falls when the price rises.
C - Total revenue increases when the price increases.
The price elasticity is less than 1, which shows that the percentage change in quantity demanded will be less than the percentage change in price.
What is the equation for the price elasticity of demand?
The elasticity of a demand curve is the percentage change in quantity demanded divided by the percentage change in price.
Which of the following statements is true?
A - If demand is linear, slope will vary across different points on the demand curve whereas the elasticity will be the same at all points on the curve.
B - Elasticity does not depend on units whereas slope does.
C - The data needed to know the demand curve’s entire slope are more likely to be available than the data needed to calculate elasticity at a given price.
D - Price elasticity of demand and slope are two names for the same concept.
B - Elasticity does not depend on units whereas slope does.
A bakery sells individual cupcakes for $3, and boxes of 12 cupcakes for $30. A customer enters the bakery and purchases 4 cupcakes.
Which of the following statements must be true of the customer’s willingness to pay?
A - The customer’s willingness to pay for 6 cupcakes is less than $15.
B - The customer’s willingness to pay for 5 cupcakes is less than $15.
C - The customer’s willingness to pay for a 5th cupcake is $0.
D - The customer’s willingness to pay for 12 cupcakes is at least $36.
B - The customer’s willingness to pay for 5 cupcakes is less than $15.
After increasing its average subscription prices in 2011, Netflix lost 800,000 subscribers. Despite this decrease in quantity sold, revenue for Netflix increased 49%.
We can conclude that, prior to the price increase, Netflix was pricing at a point on its demand curve where demand was:
A - Elastic
B - Inelastic
C - Cannot be determined from this information
B - Inelastic
When Netflix increased prices, revenue increased. This suggests that the company was previously operating at a part of the demand curve where demand was inelastic.
A company that wishes to maximize revenue should try to:
A - maximize its number of customers.
B - maximize the price of its product.
C - minimize the cost of making its product.
D - set the price where elasticity of demand will be equal to 1.
E - all of the above
D - set the price where elasticity of demand will be equal to 1.
Suppose a gelato shop increases its prices by 5 percent and sees a resulting 10 percent decrease in the quantity of gelato sold.
Price elasticity of demand for gelato is:
A - 0.1
B - 0.5
C - 2
D - 5
C - 2
Price elasticity of demand is the percentage change in quantity demanded divided by percentage change in price (10/5 = 2).
Which of the following are factors that can directly impact a consumer’s WTP for a good? Select all that apply.
A - Price of the good
B - Price of substitute goods
C - Consumer income
D - Consumer age
E - Price of the inputs used to produce the good
B - Price of substitute goods
C - Consumer income
D - Consumer age
Which of the following statements regarding price elasticity of demand is true? Select all that apply.
A - Price elasticity of demand is a better measure of price sensitivity than slope.
B - Price elasticity of demand tends to decrease over time
C - Price elasticity of demand tends to increase as price increases.
D - Price elasticity of demand for a particular product will tend to increase as more substitute goods become available.
E - Price elasticity of demand is necessarily equal to one halfway down a demand curve.
A - Price elasticity of demand is a better measure of price sensitivity than slope.
C - Price elasticity of demand tends to increase as price increases.
D - Price elasticity of demand for a particular product will tend to increase as more substitute goods become available.
