Chapter 4 True or False Quiz

. The cost of production is a major determinant of consumer demand.

. Managerial economics is primarily concerned with the market demand for an individual firm's output.

. The quantity of a commodity demanded by a consumer is influenced by the price of the commodity.

. The demand for an individual firm's output depends on the demand for the industry's output, the number of firms in the industry, and the structure of the industry.

. The quantity of a commodity demanded by a consumer is influenced by the number of consumers in the market.

. The quantity of a commodity demanded by a consumer is influenced by the prices of related commodities.

. The law of demand refers to the relationship between consumer income and the quantity of a commodity demanded per time period.

. An increase in price of a commodity will generally lead to a decrease in the quantity of the commodity demanded per time period.

. A commodity is referred to as normal if an increase in its price leads to an increase in the quantity of the commodity demanded per time period.

. Most goods are normal.

. Inferior goods are generally purchased at low levels of income but not at high levels of income.

. If an increase in the price of one commodity leads to an increase in demand for a second commodity, then the two commodities are complements.

. An individual's demand curve is formulated under the assumption that price is held constant and all other determinants of demand are allowed to vary.

. The substitution effect holds that an increase in the price of a commodity will cause an individual to search for substitutes.

. The income effect holds that a decrease in the price of a commodity is, in some respects, the same as an increase in income.

. A change in the price of a commodity will cause the demand curve for that commodity to shift.

. If a decrease in income causes an individual's demand curve for a good to shift to the left, then the good is inferior.

. If a good is normal, then both the substitution effect and the income effect cause quantity demanded to change in the same direction.

. There is an inverse relationship between the quantity demanded of a commodity and its price.

. Butter and bread are substitutes.

. A shift in demand is referred to as a change in quantity demanded.

. If the independent individual consumer demand curves for a commodity are horizontally summed, the result is the market demand curve for the commodity.

. If the consumption decisions of individual consumers are not independent, then the horizontal sum of individual consumer demand curves is the market demand curve for the commodity.

. The bandwagon effect refers to the importance of musical backgrounds in TV advertising.

. The bandwagon effect tends to make the market demand curve flatter than the horizontal summation of individual demand curves.

. The snob effect tends to make the market demand curve flatter than the horizontal summation of individual demand curves.

. Monopoly refers to a situation in which there is only one producer of a commodity for which there are many close substitutes.

. If the demand for a firm's output is horizontal, then the firm is a perfect competitor.

. Oligopoly refers to a type of market organization that is characterized by large number of firms selling a differentiated commodity.

. Monopolistic competition is a form of market organization that combines elements of perfect competition and monopoly.

. Under every form of market organization except monopolistic competition, the firm faces a downward-sloping demand curve.

. If consumers expect the price of a commodity to increase in the future, then demand for the commodity will decrease.

. Consumers find it easier to postpone the purchase of a durable good than to postpone the purchase of a nondurable good, so the demand for durable goods is more unstable than the demand for nondurable goods.

. Derived demand refers to the mathematical derivation of a market demand curve from individual consumers' demand curves.

. Derived demand by a firm will generally increase if the demand for the firm's output increases.

. According to the estimated linear demand function presented in Case 3-1, sweet potatoes are normal goods.

. Elasticity is a measure that does not depend on the units used to measure prices and quantities.

. The price elasticity of demand is the same as the slope of a demand curve.

. The arc price elasticity of demand measures the price elasticity at a point on the demand curve.

. The price elasticity of demand for a firm's output is generally more elastic than the price elasticity of demand for the industry's output of the commodity.

. If price elasticity of demand for a firm's output becomes more elastic, then the firm's marginal revenue will increase.

. If a firm increases the price of its product and total revenue increases, then the price elasticity of demand must be less than minus one.

. If the price elasticity of demand for a firm's output is inelastic, then a decrease in price will reduce the firm's total revenue.

. If the price elasticity of demand for a firm's output is unit elastic, then marginal revenue is equal to zero and total revenue is at a maximum.

. If a firm is a perfect competitor, then its marginal revenue is equal to the price of its commodity.

. If a firm is not a perfect competitor, then its marginal revenue is greater than the price of its commodity.

. An increase in the number of available substitutes for a commodity will decrease the price elasticity of demand for the commodity.

. The long-run price elasticity of demand for a commodity is generally greater then the short-run price elasticity of demand for the commodity.

. The income elasticity of demand for an inferior good is negative.

. For most goods, the income elasticity of demand is negative.

. The cross-price elasticity of demand for two goods is negative if the goods are substitutes.

. The cross-price elasticity of demand measures the percentage change in the demand for one good that results from a one percent change in the quantity demanded of a second good.

. If two goods are very close complements, then the cross-price elasticity of demand between the two goods will be large and negative.

. It is likely that the cross-price elasticity of demand between two goods produced by different firms in the same industry will be positive and large.

. Estimates of demand elasticities are used by firms to determine optimal operational policies.

. If the price elasticity of demand for a firm's output is inelastic, then the firm could increase its revenue by reducing price.

. Decreased barriers to international trade have increased the differences in consumer preferences between countries.

. The international convergence in tastes has progressed to the point where there are virtually no international differences in consumer preferences.

. Improved telecommunication technology has contributed to the globalization of markets.

. Middle-class life styles are fundamentally different in different countries.

. Electronic commerce currently accounts for no more than 10% of total U.S. retail sales.

. About 90% of the total world revenue accounted for by electronic commerce in 1999 involved business-to-business transactions.

. The growth of electronic commerce has been limited by the fact that it increases the costs to retailers of executing sales.

. Retail firms that have developed electronic commerce distribution channels typically have not maintained their traditional retail outlets.

. The ability of consumers to do comparison shopping on the Internet is likely to put pressure on profit margins at the retail level.

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