Question 1

For which of the following is the cross-price elasticity of demand most likely a large positive number?
A) hockey pucks and hockey sticks
B) DVDs and milk
C) french fries and onion rings
D) all of these, because the cross-price elasticity is always a positive number

Accepted Answer

French fries and onion rings are likely substitutes, meaning that an increase in the price of one would lead to an increase in the demand for the other, resulting in a large positive cross-price elasticity of demand.

Question 2

If two goods are complements, their cross-price elasticity of demand is:
A) less than 0.
B) equal to 0.
C) positive but almost equal to 0.
D) greater than 0.

Accepted Answer

Complementary goods are those which are used together, such as peanut butter and jelly. If the price of one good (peanut butter) increases, the demand for the other good (jelly) will decrease. Thus, the cross-price elasticity of demand for complementary goods is negative, meaning that as the price of one good increases, the quantity demanded of the complementary good decreases. Therefore, the answer is A) less than 0.

Question 3

Suppose that the cross-price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. This implies that the two goods are:
A) substitutes.
B) complements.
C) inferior.
D) normal.

Accepted Answer

A positive cross-price elasticity of demand indicates that the two goods are substitutes. In this case, as the price of Coke increases, the demand for Mountain Dew also increases, suggesting that consumers are willing to switch from Coke to Mountain Dew as a cheaper alternative.

Question 4

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:
A) inferior goods.
B) luxury goods.
C) substitute goods.
D) complementary goods.

Accepted Answer

Shoes and shirts are considered substitute goods because the increase in the price of shirts leads to an increase in the quantity of shoes purchased, indicating that shoes are being bought as an alternative to shirts.

Question 5

Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. We know that the:
A) cross-price elasticity between cereal and milk is -2.
B) cross-price elasticity between cereal and milk is -0.5.
C) price elasticity of demand for milk is 2.
D) cross-price elasticity of demand between cereal and milk is 2.

Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded for a good to a change in the price of another good. It is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of the other good. Here, the quantity of milk sold decreased by 50% in response to a 25% increase in the price of cereal, so the cross-price elasticity between cereal and milk is -50%/25% = -2, indicating that cereal and milk are complements.

Question 6

We predict the long-run price elasticity of demand for gasoline to be _____ the short-run price elasticity of demand for it.
A) less than
B) larger than
C) equal to
D) not comparable to

Accepted Answer

The long-run price elasticity of demand for gasoline is larger than the short-run price elasticity because consumers have more time to adjust their behavior in the long run, such as by buying more fuel-efficient vehicles or using alternative modes of transportation.

Question 7

Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13. This means that butter and margarine are _____, while water and lemons are _____.
A) complements; substitutes
B) substitutes; complements
C) inelastic goods; elastic goods
D) elastic goods; complements

Accepted Answer

Butter and margarine, with a positive cross-price elasticity of 0.96, are substitutes because as the price of one increases, the demand for the other increases. Water and lemons, with a negative cross-price elasticity of -0.13, are complements because as the price of one increases, the demand for the other decreases.

Question 8

The pair of items that is most likely to have a negative cross-price elasticity of demand is:
A) aspirin and hamburgers.
B) hot dogs and mustard.
C) margarine and butter.
D) ketchup and coffee.

Accepted Answer

Hot dogs and mustard are complementary goods, meaning that an increase in the price of one leads to a decrease in the demand for the other, resulting in a negative cross-price elasticity of demand.

Question 9

The cross-price elasticity of demand of complementary goods is:
A) less than 0.
B) equal to 0.
C) greater than 0.
D) between 0 and 1.

Accepted Answer

The cross-price elasticity of demand of complementary goods is negative (less than 0). This means that as the price of one complementary good increases, the demand for the other complementary good decreases. For example, if the price of coffee increases, the demand for creamer decreases.

Question 10

If your purchases of shoes remain constant at 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:
A) inferior goods.
B) unrelated goods.
C) substitute goods.
D) complementary goods.

Accepted Answer

Shoes and shirts are considered unrelated goods because the change in the price of shirts does not affect the quantity of shoes purchased.

Question 11

If a good is very inexpensive but is a necessity, you predict that demand for the good:
A) is price-elastic.
B) is price-inelastic.
C) is price unit-elastic.
D) has indeterminable price elasticity.

Accepted Answer

When a good is a necessity, it means that consumers will still demand it regardless of the price. Hence, the demand for the good will be less affected by changes in price, resulting in a price-inelastic demand curve. Even if the good is very inexpensive, consumers will not likely increase their demand for it.

Question 12

Suppose the cross-price elasticity between demand for Burger King burgers and the price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by 10%:
A) Burger King will sell 10% more burgers.
B) Burger King will sell 8% more burgers.
C) Burger King will sell 8% fewer burgers.
D) We cannot tell what will happen to Burger King, but McDonald's will sell 8% fewer burgers.

Accepted Answer

The cross-price elasticity of 0.8 indicates that for every 1% increase in the price of McDonald's burgers, the demand for Burger King burgers increases by 0.8%. Therefore, a 10% increase in McDonald's prices would lead to an 8% increase in the demand for Burger King burgers.

Question 13

The pair of items that is likely to have the largest positive cross-price elasticity of demand is:
A) coffee and tea.
B) skis and ski boots.
C) pizza and pepperoni.
D) milk and cookies.

Accepted Answer

Coffee and tea are substitutes, so an increase in the price of coffee will lead to an increase in the demand for tea.

Question 14

If two goods are substitutes, their cross-price elasticity of demand should be:
A) less than 0.
B) negative but almost equal to 0.
C) equal to 0.
D) greater than 0.

Accepted Answer

Substitute goods have a positive cross-price elasticity of demand, meaning that as the price of one good increases, the demand for the other good increases as well. Therefore, the correct answer is D, which states that the cross-price elasticity of demand should be greater than 0.

Question 15

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:
A) inferior goods.
B) luxury goods.
C) substitute goods.
D) complementary goods.

Accepted Answer

Shoes and shirts are considered complementary goods because the increase in the price of shirts led to a decrease in the purchase of shoes, indicating that these goods are used together.

Question 16

If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, this indicates that these two goods are:
A) complementary goods.
B) normal goods.
C) inferior goods.
D) substitute goods.

Accepted Answer

When the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, it suggests that consumers are switching from peanuts to licorice twists, indicating that they are substitute goods.

Question 17

The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that:
A) natural gas and electricity are both normal goods.
B) electricity and natural gas are complements.
C) electricity and natural gas are substitutes.
D) one of the two goods is inferior and the other is normal, but we need additional information to determine which of them is normal.

Accepted Answer

A positive cross-price elasticity between two goods implies that they are substitutes. In this case, a 1% increase in the price of natural gas leads to a 0.2% increase in the quantity demanded of electricity, indicating that consumers are willing to switch to electricity as a substitute to natural gas when the price of natural gas goes up.

Question 18

In general, we predict demand for Gala apples to be:
A) price-elastic.
B) price-inelastic.
C) perfectly price-elastic.
D) perfectly price-inelastic.

Accepted Answer

Gala apples are not a necessary item for most consumers, so they will likely decrease their quantity demanded as the price increases, making demand price-elastic.

Question 19

The cross-price elasticity of demand for Coke with respect to the price of Pepsi has been estimated to be 0.61. If the price of Pepsi falls by 10%, all other things unchanged, the quantity demanded of Coke will:
A) decrease by less than 6.1%.
B) decrease by 6.1%.
C) not change, because many people prefer Coke to Pepsi.
D) rise.

Accepted Answer

The answer of The cross-price elasticity of demand for Coke...

Question 20

If the price of chocolate-covered peanuts increases and the demand for strawberry-flavored soft drinks decreases, this indicates that these two goods are:
A) unrelated goods.
B) complementary goods.
C) inferior goods.
D) substitute goods.

Accepted Answer

When the price of one good increases and the demand for another good decreases, it suggests that the two goods are complementary, meaning they are often used together.

Quiz 6: Elasticity

For which of the following is the cross-price elasticity of demand most likely a large positive number?

If two goods are complements, their cross-price elasticity of demand is:

Suppose that the cross-price elasticity of demand for Mountain Dew with respect to the price of Coke is 0.7. This implies that the two goods are:

If your purchases of shoes increase from 9 pairs per year to 11 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:

Suppose the price of cereal rose by 25% and the quantity of milk sold decreased by 50%. We know that the:

We predict the long-run price elasticity of demand for gasoline to be _____ the short-run price elasticity of demand for it.

Suppose the cross-price elasticity of demand for butter and margarine is equal to 0.96 but the cross-price elasticity for water and lemons is -0.13. This means that butter and margarine are _, while water and lemons are _.

The pair of items that is most likely to have a negative cross-price elasticity of demand is:

The cross-price elasticity of demand of complementary goods is:

If your purchases of shoes remain constant at 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:

If a good is very inexpensive but is a necessity, you predict that demand for the good:

Suppose the cross-price elasticity between demand for Burger King burgers and the price of McDonald's burgers is 0.8. If McDonald's increases the price of its burgers by 10%:

The pair of items that is likely to have the largest positive cross-price elasticity of demand is:

If two goods are substitutes, their cross-price elasticity of demand should be:

If your purchases of shoes decrease from 11 pairs per year to 9 pairs per year when the price of shirts increases from $8 to $12, for you, shoes and shirts are considered:

If the price of chocolate-covered peanuts increases and the demand for strawberry licorice twists increases, this indicates that these two goods are:

The cross-price elasticity of electricity with respect to the price of natural gas has been estimated as being equal to 0.2. This implies that:

In general, we predict demand for Gala apples to be:

The cross-price elasticity of demand for Coke with respect to the price of Pepsi has been estimated to be 0.61. If the price of Pepsi falls by 10%, all other things unchanged, the quantity demanded of Coke will:

If the price of chocolate-covered peanuts increases and the demand for strawberry-flavored soft drinks decreases, this indicates that these two goods are: