Quiz 11
For all relevant questions, ignore taxes. Assume demand curves are linear.
1. What is the most common form of payment in the United States?
a. Cash
b. Charge Cards
c. Credit Cards
d. Debit Cards
e. None of the above.
2. I run a winery that deals with cash and credit cards. I sell a bottle of wine for $27.15. The consumer uses a credit card that has a $0.15 + 1.85% processing fee. How much more would I have earned in revenue if the consumer had used cash?
3. I run a winery that deals with cash and credit cards. I sell a bottle of wine for $33.15. The consumer uses a credit card that has a $0.15 + 2.25% processing fee. How much more would I have earned in revenue if the consumer had used cash?
4. My shoe store accepts payments in credit cards and debit cards. The credit cards I accept charge $0.10 + 2.4% and debt cards charge $0.20 + 2.2%. At what purchase price will the revenues earned by the card companies (credit or debit) be equal. In other words, if a customer comes in and buys an item—what exactly purchase price would cause the card companies to earn the exact same revenues regardless of whether the consumer used credit or debit?
5. Ian normally uses cash for all purchases. But, he just received a cash-back credit card that offers 2.2% back on all purchases. Normally he spends $2,800 per month using cash, but with the card, he spends $2,885. Solve for Ian’s elasticity of demand using the midpoint formula.
6. Ian normally uses cash for all purchases. But, he just received a cash-back credit card that offers 2.2% back on all purchases. Normally he spends $2,800 per month using cash, but with the card, he spends $2,885. Ian’s demand is…
a. Elastic. Therefore, his demand is relatively flat.
b. Elastic. Therefore, his demand is relatively vertical.
c. Inelastic. Therefore, his demand is relatively flat.
d. Inelastic. Therefore, his demand is relatively vertical.
7. Ian normally uses cash for all purchases. But, he just received a cash-back credit card that offers 2.2% back on all purchases. Normally he spends $2,800 per month using cash, but with the card, he spends $2,885. How much does Ian’s savings change as a result of using the card? Be sure to indicate the amount and whether his savings increases or decreases.
8. Ian normally uses cash for all purchases. But, he just received a cash-back credit card that offers 2.2% back on all purchases. Normally he spends $2,800 per month using cash, but with the card, he spends $2,885. Solve for the change in Ian’s consumer surplus per month since he is now using this credit cards instead of cash.
9. Stephanie normally uses cash for all purchases. But, she just received a cash-back credit card that offers 4.4% back on all purchases. Normally she spends $4,500 per month using cash, but with the card, she spends $4,802. Solve for Stephanie’s elasticity of demand using the midpoint formula
10. Stephanie normally uses cash for all purchases. But, she just received a cash-back credit card that offers 4.4% back on all purchases. Normally she spends $4,500 per month using cash, but with the card, she spends $4,802. How much does Stephanie’s savings change as a result of using the card? Be sure to indicate the amount and whether her savings increases or decreases.
11. Stephanie normally uses cash for all purchases. But, she just received a cash-back credit card that offers 4.4% back on all purchases. Normally she spends $4,500 per month using cash, but with the card, she spends $4,802. Solve for the change in Stephanie’s consumer surplus per month since she is now using this credit card instead of cash.
12. I have an elasticity of demand of 0.8. Normally I use my cash-back credit card, but I have just decided to start using only cash. As a result of using cash, my total savings will…
a. Increase
b. Decrease
c. Stay the same
d. This cannot be determined.
13. I have an elasticity of demand of 1.6. Normally I use my cash-back credit card, but I have just decided to start using only cash. As a result of using cash, my total savings will…
a. Increase
b. Decrease
c. Stay the same
d. This cannot be determined.
14. I run a credit card firm. I am offering a 1% cash-back credit card to consumers. My boss gives me a raise if I can find consumers that will spent a lot more money if they transition from cash to credit card spending. I should aim to target consumers that have ________ demand.
a. Elastic
b. Inelastic
15. I normally spend $3,000/month with cash, but now I have a 2% cash-back credit card. If my demand curve is perfectly vertical, how will my savings change now that I’m using this credit card?
a. Savings this month increases by $6
b. Savings this month increases by $30
c. Savings this month decreases by $6
d. Savings this month decreases by $30
e. None of the above.
16. My friend Deepak co-owns Metropolis Greek Cafe and Bollywood Tacos (both in downtown Milledgeville). Metropolis consumers tend to spend about $18 per visit, while Bollywood consumers spend about $12. On an effective fee (credit card fee as a percent of purchase prices) basis, Deepak’s bottom line is more adversely affected when consumers decide to pay using credit cards at __________.
a. Bollywood
b. Metropolis