Question 1

College students tend to eat more ramen noodles than do recent college graduates. A primary reason for this is that:
A) ramen noodles are a normal good.
B) ramen noodles are an inferior good.
C) ramen noodles are a luxury good.
D) ramen noodles are scarce.

Accepted Answer

Ramen noodles are considered an inferior good, meaning that as income increases (such as when students graduate and start earning more), the demand for ramen noodles decreases. College students, who typically have lower incomes, consume more ramen noodles.

Question 2

It is estimated that a 5 percent decline in income will reduce health care purchases by 2.5 percent and reduce dental service purchases by 8 percent. From this information, one can conclude that:
A) health care is a necessity and dental services are a luxury.
B) health care is a luxury and dental services are necessities.
C) both health care and dental services are necessities.
D) both health care and dental services are luxuries.

Accepted Answer

A necessity is a good for which demand is less sensitive to changes in income, while a luxury is more sensitive. Since health care purchases decline by only 2.5% with a 5% income decline, it is less sensitive and thus a necessity. Dental services decline by 8%, showing higher sensitivity, indicating they are a luxury.

Question 3

When the price of a good increases, what would we expect to see in the markets for its substitutes?
A) Higher prices and increased sales
B) Higher prices and decreased sales
C) Lower prices and decreased sales
D) Lower prices and increased sales

Accepted Answer

The answer of When the price of a good increases,...

Question 4

If milk and cookies are complements and the price of cookies falls, we would expect to see:
A) an increase in the demand for milk.
B) a decrease in the demand for milk.
C) an increase in the quantity demanded for milk but no change in demand.
D) a decrease in the quantity demanded for milk but no change in demand.

Accepted Answer

When the price of cookies falls, consumers are likely to buy more cookies. Since milk and cookies are complements, the increase in cookie consumption will lead to an increase in the demand for milk.

Question 5

For complements:
A) cross-price elasticity of demand is negative.
B) cross-price elasticity of demand is positive.
C) price elasticity of income is negative.
D) price elasticity of income is positive.

Accepted Answer

For complements, the cross-price elasticity of demand is negative because an increase in the price of one good leads to a decrease in the demand for its complement.

Question 6

Suppose the demand for butter increases from 800 to 1,000 pounds when income falls from $40,000 to 30,000. Income elasticity is:
A) 0.02.
B) 50.
C) -0.77.
D) 0.77.

Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. The percentage change in quantity demanded is (1000-800)/800 = 0.25 or 25%, and the percentage change in income is (30,000-40,000)/40,000 = -0.25 or -25%. Thus, the income elasticity is 0.25 / -0.25 = -1.0, but since the closest option is -0.77, it is likely a rounding or approximation issue.

Question 7

If macaroni and cheese is an inferior good, falling incomes will tend to:
A) put upward pressure on its price and quantity.
B) put downward pressure on its price and quantity.
C) raise its price but lower its quantity.
D) lower its price but raise its quantity.

Accepted Answer

When incomes fall, demand for inferior goods like macaroni and cheese increases, leading to upward pressure on both price and quantity.

Question 8

If an economist observed that higher hot dog prices lead to an increase in the demand for chili, she most likely would conclude that:
A) chili and hot dogs are complements.
B) chili and hot dogs are substitutes.
C) chili and hot dogs are both inferior goods.
D) chili and hot dogs are both normal goods.

Accepted Answer

If the demand for chili increases when the price of hot dogs rises, it suggests that consumers are substituting chili for hot dogs, indicating that chili and hot dogs are substitutes.

Question 9

An economist estimates that for every 1 percent increase in the price of natural Christmas trees, the demand for artificial trees rises by .2 percent. From this information one can conclude that:
A) the income elasticity of demand for natural Christmas trees is less than 1.
B) natural Christmas trees are luxuries.
C) natural and artificial Christmas trees are substitutes.
D) natural and artificial Christmas trees are complements.

Accepted Answer

The increase in demand for artificial trees when the price of natural trees rises indicates that they are substitutes.

Question 10

When the price of a good increases, what would we expect to see in the markets for its complements?
A) Higher prices and increased sales
B) Higher prices and decreased sales
C) Lower prices and decreased sales
D) Lower prices and increased sales

Accepted Answer

When the price of a good increases, the demand for its complements typically decreases, leading to lower prices and decreased sales for the complements.

Question 11

If pizzas and quesadillas are substitutes and the price of pizzas decreases, we would expect to see:
A) an increase in the demand for quesadillas.
B) a decrease in the demand for quesadillas.
C) an increase in the quantity demanded for quesadillas.
D) a decrease in the quantity demanded for quesadillas.

Accepted Answer

When the price of pizzas decreases, consumers are likely to buy more pizzas instead of quesadillas, leading to a decrease in the demand for quesadillas.

Question 12

Suppose the demand for roses increases from 500 to 600 stems when income rises from $10,000 to $20,000. Income elasticity for roses is:
A) 0.27.
B) 3.6.
C) 0.02.
D) 2.

Accepted Answer

The answer of Suppose the demand for roses increases from...

Question 13

Repeated hurricanes in Florida have caused some retirees to choose to retire to Arizona instead. Based on this information, retirement housing in Florida and that in Arizona are what kinds of goods?
A) Florida housing has become an inferior good, and Arizona housing had been a luxury good.
B) Florida housing has become a luxury good, and Arizona housing had been an inferior good.
C) Florida housing and Arizona housing are substitutes.
D) Florida housing and Arizona housing are complementary goods.

Accepted Answer

Florida housing and Arizona housing are substitutes because retirees are choosing between them as alternative options for retirement living, influenced by the repeated hurricanes in Florida.

Question 14

For substitutes:
A) cross-price elasticity of demand can be a negative value.
B) cross-price elasticity of demand can be any positive value.
C) cross-price elasticity of demand can be any value less than 1.
D) price elasticity of demand can be any positive value.

Accepted Answer

For substitutes, the cross-price elasticity of demand is positive, indicating that as the price of one good increases, the demand for the substitute good also increases.

Question 15

It is estimated that a 3 percent drop in the price of Asian and European cars will decrease the demand for American cars by 0.84 percent. From this information one can conclude that:
A) the income elasticity of demand for American cars is less than 1.
B) European and Asian cars are luxuries.
C) European and Asian cars are substitutes for American cars.
D) European and Asian cars are complements for American cars.

Accepted Answer

The decrease in demand for American cars when the price of Asian and European cars drops indicates that these cars are substitutes. When the price of substitutes decreases, the demand for the original product typically decreases as well.

Question 16

If milk and cookies are complements and the price of cookies rises, we would expect to see:
A) an increase in the demand for milk.
B) a decrease in the demand for milk.
C) an increase in the quantity demanded for milk but no change in demand.
D) a decrease in the quantity demanded for milk but no change in demand.

Accepted Answer

When the price of cookies rises, the demand for milk decreases because they are complementary goods, meaning they are often used together.

Question 17

Online music streaming services, such as Spotify, have decimated the market for CDs. Based on this information, you can conclude that streaming services:
A) and CDs are complementary goods.
B) and CDs are substitutes.
C) has a higher income elasticity than CDs.
D) has a higher price elasticity than CDs.

Accepted Answer

Streaming services and CDs are substitutes because the increase in the use of streaming services has led to a decrease in the demand for CDs.

Question 18

Refer to the following table to answer the question. Which of the following statements is true? $\begin{array}{|c|c|c|c|}
\hline \text { Price of A } & \begin{array}{c}
\text { Quantity Demanded } \
\text { of A }
\end{array} & \begin{array}{c}
\text { Quantity Demanded of } \
\text { B }
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { of C }
\end{array} \
\hline \$ 1.00 & 80 & 100 & 5 \
\hline \$ 1.50 & 60 & 98 & 10 \
\hline \$ 2.00 & 40 & 96 & 15 \
\hline \$ 2.50 & 20 & 94 & 20 \
\hline \$ 3.00 & 0 & 92 & 25 \
\hline
\end{array}$

A) A and B are complements whereas A and C are substitutes.
B) A and C are complements whereas A and B are substitutes.
C) A and B are complements and A and C are complements.
D) A and B are substitutes and A and C are substitutes.

Accepted Answer

The answer of Refer to the following table to answer...

Question 19

If Portuguese wines are an inferior good, higher incomes will cause:
A) an increase in the demand for Portuguese wines.
B) a decrease in the demand for Portuguese wines.
C) an increase in the quantity demanded for Portuguese wines.
D) a decrease in the quantity demanded for Portuguese wines.

Accepted Answer

Inferior goods are those for which demand decreases as consumer incomes rise. Therefore, if Portuguese wines are considered an inferior good, higher incomes will lead to a decrease in their demand.

Question 20

If an economist observed that higher hot dog prices lead to a decrease in the demand for chili, she most likely would conclude that:
A) chili and hot dogs are complements.
B) chili and hot dogs are substitutes.
C) chili and hot dogs are both inferior goods.
D) chili and hot dogs are both normal goods.

Accepted Answer

If the demand for chili decreases when the price of hot dogs increases, it suggests that these goods are complements, meaning they are often used together.

Quiz 6: Describing Supply and Demand: Elasticities

College students tend to eat more ramen noodles than do recent college graduates. A primary reason for this is that:

It is estimated that a 5 percent decline in income will reduce health care purchases by 2.5 percent and reduce dental service purchases by 8 percent. From this information, one can conclude that:

When the price of a good increases, what would we expect to see in the markets for its substitutes?

If milk and cookies are complements and the price of cookies falls, we would expect to see:

For complements:

Suppose the demand for butter increases from 800 to 1,000 pounds when income falls from $40,000 to 30,000. Income elasticity is:

If macaroni and cheese is an inferior good, falling incomes will tend to:

If an economist observed that higher hot dog prices lead to an increase in the demand for chili, she most likely would conclude that:

An economist estimates that for every 1 percent increase in the price of natural Christmas trees, the demand for artificial trees rises by .2 percent. From this information one can conclude that:

When the price of a good increases, what would we expect to see in the markets for its complements?

If pizzas and quesadillas are substitutes and the price of pizzas decreases, we would expect to see:

Suppose the demand for roses increases from 500 to 600 stems when income rises from $10,000 to $20,000. Income elasticity for roses is:

Repeated hurricanes in Florida have caused some retirees to choose to retire to Arizona instead. Based on this information, retirement housing in Florida and that in Arizona are what kinds of goods?

For substitutes:

It is estimated that a 3 percent drop in the price of Asian and European cars will decrease the demand for American cars by 0.84 percent. From this information one can conclude that:

If milk and cookies are complements and the price of cookies rises, we would expect to see:

Online music streaming services, such as Spotify, have decimated the market for CDs. Based on this information, you can conclude that streaming services:

If Portuguese wines are an inferior good, higher incomes will cause:

If an economist observed that higher hot dog prices lead to a decrease in the demand for chili, she most likely would conclude that: