. If the interest rate is 7% and cash flows are $4,000 at the end of year one and $6,000

Dr. Rawana
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Name (last)……………………………………,
(first)………………………………….. October, 2015
MG 640 Quiz
1 Part I of 2
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Discussion/ Problem

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1. If the interest rate is 7% and cash
flows are $4,000 at the end of year one and $6,000 at the end of year two,
then the present value of these cash flows is

a. $9,246.

b. $8,979.

c. $9,615.

d. $10,691.
e. None of the above

Show all work.
The use of the time line is useful in explaining your answer.

2. If the interest rate is 6.5%, what is the present value of $500
received in one year?

a. $303.

b. $469.

c. $532.

d. $577.
e. None of the above

Show all work. The
use of the time line is useful in explaining your answer.

3. Pears
and oranges are substitutes. A freeze in Florida destroys most of the orange
crop. What would you expect to happen to the market (price and quantity) for each
of the following:
(Hint: Use
the demand curve and supply curve to draw conclusion with respect to the impact
on the price and quantity following the freeze).

a. Oranges?

b. Pears?

c. Orange juice?

4. Suppose
market demand and supply are given by Qd = 30 – 3P and QS
= 5 +2P.
a) Solve for the
equilibrium price and quantity. Show your work!
b) Draw the
demand and supply curve and show the equilibrium values obtained in part a)
Show Work!
5. In a competitive
market, the market demand is Qd = 96 –10P and the market supply is Qs = 14p. A
price ceiling of $5 will result in a shortage of
a. 36 units b.
24 units
c. 16 units d.
None of the above
Show your work!Using market demand and
Market supply diagram!
6. Graphically, a report indicating the health
defects from consuming extra ounces of whole grains per day increases the
chances of cancer by 30% will cause the demand curve for grains to:
a.
Shift rightward c. Shift leftward
b.
Become flatter d. Become steeper
Show your work using the tools of demand and supply curves!

Consumer surplus
is the difference between the

Market price and the minimum
price required to induce production
The maximum willingness to
pay of consumers and the market price
Quantity demanded and the
quantity supplied at the market price
Full economic price and
the minimum price required to induce production

Show your work!

8. a)
What is scarcity? Can it be eliminated? Explain

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b)
Why
does scarcity exist? How can it be resolved? Explain

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c) IS
there such a thing as a free lunch? If yes, explain and offer examples. If No,
explain and give examples.

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What is market equilibrium? Does the market always achieve
equilibrium? If so, why? If not, why? Explain. Illustrate with examples
and graphs where necessary

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The movement along a given demand
curve is the same as a shift in the demand curve.

True False. Explain
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If the income
elasticity for designer jeans is 2.5, a 10% increase in income will lead
to a

a.
25% rise in demand for designer jeans.

b.
0.25% drop in the demand for designer
jeans.

c.
0.25% rise in demand for designer jeans.
Show your work

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12. Which of the following increases
the potential for sustainable long-run industry profits?

a. Entry.

b. The availability of multiple substitutes.

c. Absence of complements.

d. Presence of complements

Explain your choice

13. If firms in the pizza industry are earning negative economic profits,
which of the following will most likely occur in the future?

a. Some firms will exit the market.

b. The economic profits of the firms in the industry will
rise.

c. The market price for pizza will rise.

d. All of the responses are correct.

Explain your choice

14. You are the manager
of a popular hand bag company. You know that the advertising elasticity of
demand for your product is 2.5. How much will you have to increase spending on
advertising in order to increase demand by 4%?

a. 0.16%.

b.
1.6%.

c.
2%.

d.
10%.
Show your work

15. a) What is
meant by price elasticity of demand. List and explain three factors of price
elasticity of demand.

b) Why
managers are interested in the concept of price elasticity of demand?
Illustrate with examples

c) Why are
managers interested in the concept of consumer surplus? Illustrate with examples.