1.

The manager of the Food Bazaar store accidentally mismarked a shipment of 10-kg bags of rice at Rs 219 instead of the regular price of Rs. 259. At the end of a week, the store's inventory of 100 bags of rice was completely sold out. The store normally sells an average of 75 bags per week. The store's absolute arc elasticity of demand for rice is a. b. c. d. e. 2. 1.25 1.71 2.75 0.59 None of the above

The Mobile Corporation manufactures a variety of cell phones selling for Rs. 3980 each. Sales have averaged 10,000 units per month during the last year. Recently Mobile Corporations closest competitor, Portable Company, cut its prices on similar phones from Rs. 3600 to Rs. 2700. Mobile Corporation noticed that its sales declined to 7,500 units per month after the price cut. What is the arc cross elasticity of demand between Mobile corporations and Portable companys phones a) 1.70 b) 0.75 c) 1 d) 1.30 e) None of the above 3 With inelastic demand, a price increase is most likely to result in: a. lower profits. b. higher profits. c. lower marginal revenue. d. higher total revenue e. both b and d

4. Which of the following is most likely to be correct? a) Maruti's share of the automobile market remains roughly constant from year to year, so the demand curve for Maruti's automobiles is about the same as for automobiles in general. b) The demand for Maruti automobiles is less elastic than the demand curve for automobiles in general. c) The demand for Marutis automobiles is more elastic than the demand for automobiles in general d) There is no reason to expect the elasticity of demand for Maruti automobiles to be related to the elasticity of demand for automobiles in general. e) None of the above

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Honda Motors announces that it will offer Rs 30,000 rebate on new Brio cars starting next month. As a result of this information, todays demand curve for Brio cars a) shifts to the right. b) shifts to the left. c) shifts either to the right or to the left, but we cannot determine the direction of the shift from the given information. d) will not shift; rather, the demand curve for Brio cars will shift to the right next month. e) None of the above is true A management consultant has been asked to calculate and analyze market demand for a new video game that is to be marketed to retail (R) and wholesale (W) customers over the Internet. The client has also provided the following annual demand information. QR = Rs.6250 - Rs.1PR Qw = Rs.5000 - Rs.2PW Complete the following table:
Price 5000 4000 3000 2000 1000 Market Demand

6.

7.

DJ, the general manager, estimated the following monthly demand function for CDs sold by his firm: Qd = 1200 20Pd + 0.1Y + .08A where Qd = quantity demanded of toothpaste (monthly), Pd = price per CDs, Y = per capita income in the market area (monthly), A = advertising expenditures by her firm (monthly) the current price is 41 and advertising expenditure is Rs. 4000 per month. What is the income elasticity of demand at Rs. 1200 per month? a. 1.05 b. 2.05 c. 0.15 d. 0.39 e. None of the above

8.

Suppose you make gold jewelry. If the price of gold falls, we would expect you to a. be willing and able to produce less jewelry than before at each possible price. b. be willing and able to produce more jewelry than before at each possible price. c. face a greater demand for your jewelry. d. face a weaker demand for your jewelry.

9.

Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because a. buyers tend to be much less sensitive to a change in price when given more time to react b. buyers tend to be much more sensitive to a change in price when given more time to react. c. d. buyers will have substantially more income over a ten-year period. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline.

10.

Assume SeatComfy Inc. estimates the demand for its table chairs to be Q = 5,000 25P + 4I +10PA 15 PT, where P = the price of SeatComfy's chairs; PA = average price of competitors' chairs; PT = price of tables; and I = average income of SeatComfy's customers. Which of the following is true? a) SeatComfy's chairs are inferior goods; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each $10 increase in their own price. b) SeatComfy's chairs are normal goods; SeatComfy's and competitors' chairs are substitutes, while SeatComfy's sales are not affected by the pricing decisions of tables' producers. SeatComfy's sales increase by 50% if the price decreases by $2. c) SeatComfy's chairs are a normal good; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 25 units for each dollar increase in price. d) SeatComfy's chairs are a normal good; SeatComfy's chairs and tables are complements, while SeatComfy's and competitors' chairs are substitutes. SeatComfy's sales decrease by 250 units for each dollar increase in price.

11.

State capitalism as it has emerged in China, Russia and Brazil especially post 2008 financial crisis has been criticized on the following grounds: a) its inability to produce innovation b) It is plagued by cronyism and corruption c) It is often authoritarian unlike the invisible hand of the market d) All of the above e) None of the above You have responsibility for economic policy in India. Recently the neighboring country of Pakistan has cut off all exports of Onions to India. Ashok, who is one of your advisors, suggests that you should impose a binding price ceiling in order to avoid a shortage of Onions. Rakesh, another one of your advisors, argues that without a binding price floor, a shortage will certainly develop. Raghu, a third advisor, says that the best way to avoid a shortage of Onions is to take no action at all. Which of your three advisors is most likely to have studied economics?\ a. Ashok b. Rakesh c. Raghu d. None of them

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Holding all other forces constant, when the price of gasoline rises, the number of gallons of gasoline demanded would fall substantially over a ten-year period because a) b) c) d) buyers tend to be much less sensitive to a change in price when given more time to react buyers tend to be much more sensitive to a change in price when given more time to react. buyers will have substantially more income over a ten-year period. the quantity supplied of gasoline increases very little in response to an increase in the price of gasoline

14.

If a price ceiling is the maximum legal price that may be charged for some good or service, and a price floor is the minimum legal price that may be charged for some good or service, which of the following circumstances would result in a shortage?

a. The government establishes a price support (floor) for milk at a price of 20.00 per litre while the market equilibrium price would be (is) 18.75 b. The government establishes a price support (floor) for wheat at a price of 12.00 per kg, while the equilibrium price would be (is) 13.00 c. New Delhi City local government establishes a rent control (price ceiling) on apartments in a certain section of the city at Rs. 20,000 per month, while the equilibrium price for the apartments would be (is) Rs. 21, 500 per month d. a and b e. None of the above

15.

a. b. c. d.

Consider airfares on flights between Delhi and Jaipur. When the airfare is Rs.2500, the quantity demanded of tickets is 2,000 per week. When the airfare is Rs.2800, the quantity demanded of tickets is 1,700 per week. Using the arc method the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to decrease the price elasticity of demand is about 1.43 and an increase in the airfare will cause airlines' total revenue to increase the price elasticity of demand is about 0.70 and an increase in the airfare will cause airlines' total revenue to decrease. the price elasticity of demand is about 0.70 and an increase in the airfare will cause airlines' total revenue to increase. With petrol costing on average 42 per cent more than diesel in India, there is an incentive to a. Buy more petrol cars b. Buy more cars powered by diesel c. Run more private generators and telecom towers etc on diesel d. Both b and c Under rent control, bribery is a mechanism to bring the total price of an apartment (including the bribe) closer to the equilibrium price. allocate housing to the poorest individuals in the market. force the total price of an apartment (including the bribe) to be less than the market price. allocate housing to the most deserving tenants..

16.

17 a. b. c. d.

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You are in charge of the local city-owned golf course. You need to increase the revenue generated by the golf course in order to meet expenses. The mayor advises you to increase the price of a round of golf. The city manager recommends reducing the price of a round of golf. You realize that a. b. c. d. the mayor thinks demand is elastic and the city manager thinks demand is inelastic. both the mayor and the city manager think that demand is elastic. both the mayor and the city manager think that demand is inelastic. the mayor thinks demand is inelastic and the city manager thinks demand is elastic.

(1/2 point each) 19-20 The demand for Indian Oil motor oil can be characterized by the following point elasticities: price elasticity = -2.5, cross-price elasticity with BP motor oil = 1.5, and income elasticity = 0.75. Indicate whether each of the following statements is true or false. A price increase for Indian Oil will decrease both the number of units demanded and the total revenue of sellers. The cross-price elasticity indicates that a 2% increase in the price of BP Oil will cause a 3% increase in Indian Oil demand. Demand for Indian Oil is price elastic and the motor oil is a normal good.

A 0.9% price reduction for Indian Oil would be necessary to overcome the effects of a 3% decline in income. Extra Credit Question (1 point) Name the economist recently appointed as Chief economic Advisor to the Government of India