Question 1

The income elasticity of demand is a measure of the responsiveness of the
A) quantity of a good demanded to changes in income.
B) consumer's income to a change in the price of the goods he or she consumes.
C) quantity of a good demanded to changes in its price.
D) quantity of a good demanded to changes in another good's price.

Accepted Answer

Income elasticity of demand measures how the quantity demanded of a good responds to changes in consumer income.

Question 2

If the cross elasticity of demand is -5 between french fries and orange drink, then french fries
A) and orange drink are complements.
B) and orange drink are substitutes.
C) are a normal good and orange drink is an inferior good.
D) are an inferior good and orange drink is a normal good.

Accepted Answer

Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. A negative cross elasticity of demand indicates that the two goods are substitutes, meaning that an increase in the price of one good will lead to an increase in the demand for the other good.

Question 3

If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the goods must be ________ and the cross elasticity of demand equals ________.
A) substitutes; 0.40
B) substitutes; 2.5
C) complements; 0.40
D) complements; 2.5

Accepted Answer

The goods are substitutes because an increase in the price of one leads to an increase in the demand for the other. The cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of the other good, which is 2% / 5% = 0.40.

Question 4

If a rise in the price of good B increases the quantity demanded of good A
A) A and B are substitutes.
B) A and B are complements.
C) A is a substitute for B, but B is a complement to A.
D) B is a substitute for A, but A is a complement to B.

Accepted Answer

When the price of good B rises and the quantity demanded of good A increases, it indicates that consumers are switching from B to A, making A and B substitutes.

Question 5

If there is an increase in the price of broccoli because of disastrous weather that destroys about half of this year's spinach crop, which of the following could be TRUE?
A) The cross elasticity of demand between spinach and broccoli is negative 1.25.
B) The demand curve for broccoli has shifted rightward and the cross elasticity of demand between spinach and broccoli is positive.
C) The demand curve for spinach has shifted to the leftward and the cross elasticity of demand between spinach and broccoli is positive.
D) The demand curves for spinach and broccoli have become more cross inelastic.

Accepted Answer

The increase in the price of broccoli due to a decrease in the spinach supply suggests that spinach and broccoli are substitutes. This would cause the demand for broccoli to increase, shifting its demand curve rightward, and the cross elasticity of demand would be positive.

Question 6

If the price of one good increases by 3 percent and the quantity demanded of another good increases by 2 percent, the cross elasticity is ________ and the two goods are ________.
A) 2/3, substitutes
B) 2/3, complements
C) 3/2, complements
D) 3/2, substitutes

Accepted Answer

The cross elasticity is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. In this case, the cross elasticity is 2/3, which means that a 1% increase in the price of the first good will lead to a 2/3% increase in the quantity demanded of the second good. This indicates that the two goods are substitutes, as an increase in the price of one good will lead to an increase in the demand for the other good.

Question 7

A rise in the price of good A shifts the ________ good B rightward if the cross elasticity of demand between A and B is ________.
A) demand curve for; negative
B) demand curve for; positive
C) supply curve of; negative
D) supply curve of; positive

Accepted Answer

If the cross elasticity of demand between goods A and B is positive, it means they are substitute goods. Therefore, a rise in the price of good A will increase the demand for good B, shifting its demand curve rightward.

Question 8

If the cross elasticity of demand between two goods is -0.56, then a fall in the price of one good leads to a ________ shift in the ________ of the other good.
A) rightward; demand
B) rightward; supply
C) leftward; demand
D) leftward; supply

Accepted Answer

The answer of If the cross elasticity of demand between...

Question 9

The cross-elasticity of demand between Homer's Holesome Doughnuts and Krusty's Krispy Crullers is 5.0, which indicates that Homer's doughnuts and Krusty's crullers are
A) complements and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is very responsive to changes in the price of crullers).
B) complements and the relationship between the two goods is weak (that is, the quantity demanded of doughnuts is not very responsive to changes in the price of crullers).
C) substitutes and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is very responsive to changes in the price of crullers).
D) substitutes and the relationship between the two goods is weak (that is, the quantity demanded of doughnuts is not very responsive to changes in the price of crullers).

Accepted Answer

A cross-elasticity of demand of 5.0 indicates that the goods are substitutes, and the high value shows a strong relationship, meaning the quantity demanded of one is very responsive to price changes in the other.

Question 10

Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what will be the percentage change in the quantity of Dell computers demanded?
A) 2.4 percent
B) -10.5 percent
C) 10.5 percent
D) -42 percent

Accepted Answer

The answer of Suppose that the cross elasticity of demand...

Question 11

Suppose inter-city bus travel is a substitute for transportation by train. Which of the following could then be TRUE?
A) The cross elasticity between bus and train travel could equal 0.65.
B) The cross elasticity between bus and train travel could equal 1.0.
C) The cross elasticity between bus and train travel could equal 1.25.
D) All of the above could be true.

Accepted Answer

The cross elasticity of demand measures how the quantity demanded of one good responds to a price change in another good. For substitutes, the cross elasticity is positive, indicating that an increase in the price of one leads to an increase in the demand for the other. All given values (0.65, 1.0, 1.25) are positive, so they all could be true for substitutes.

Question 12

If goods A and B are complements, then
A) the cross elasticity of demand between A and B is negative.
B) the cross elasticity of demand between A and B is positive.
C) their income elasticities of demand are both greater than 1.
D) their income elasticities of demand are both less than 1.

Accepted Answer

The cross elasticity of demand between two complementary goods is negative because an increase in the price of one leads to a decrease in the demand for the other.

Question 13

Dell lowers the price of their PCs by 10 percent. As a result, the quantity of Gateway computers demanded at the current price decreases by 12 percent. What is the cross elasticity of demand for Gateway computers with respect to the price of Dell computers?
A) -1.20
B) -0.83
C) 1.20
D) 0.83

Accepted Answer

The cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is -12% / -10% = 1.20.

Question 14

If a fall in the price of good A increases the quantity demanded of good B
A) A and B are substitutes.
B) A and B are complements.
C) A is a substitute for B, but B is a complement to A.
D) B is a substitute for A, but A is a complement to B.

Accepted Answer

When the price of good A falls and the quantity demanded of good B increases, it indicates that A and B are complements, meaning they are often used together.

Question 15

If the cross elasticity of demand between goods A and B is negative
A) the demands for A and B are both price elastic.
B) the demands for A and B are both price inelastic.
C) A and B are complements.
D) A and B are substitutes.

Accepted Answer

A negative cross elasticity of demand indicates that as the price of one good increases, the demand for the other good decreases, which is characteristic of complementary goods.

Question 16

Based on the following pieces of information, which fast food product do consumers see as the closest substitute for Wendy's Hamburgers?
A) Kentucky Fried Chicken, which has a cross elasticity of 1.70 with Wendy's
B) McDonald's hamburgers, which have a cross elasticity of 1.01 with Wendy's
C) Pizza Hut pizza, which has a cross elasticity of zero with Wendy's
D) Taco Bell tacos, which have a cross elasticity of -1.25 with Wendy's

Accepted Answer

The answer of Based on the following pieces of information,...

Question 17

The cross elasticity of demand between Coca-Cola and Pepsi-Cola is ________ so that Coke and Pepsi are ________.
A) positive; complements
B) positive; substitutes
C) negative; normal goods
D) negative; substitutes

Accepted Answer

The cross elasticity of demand between two goods is positive when they are substitutes, meaning that an increase in the price of one leads to an increase in the demand for the other.

Question 18

Microsoft raises the price of its Office software by 10 percent. As a result, the quantity of personal computers demanded at the current price decreases by 5 percent. What is the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software?
A) -2.0
B) -0.5
C) 0.5
D) 2.0

Accepted Answer

The cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is -5% / 10% = -0.5.

Question 19

The greater the substitutability between Northwest timber and Southeast timber, the ________ is the cross elasticity of demand between timber from the two regions and the ________ is the elasticity of demand for Northwest timber.
A) smaller; smaller
B) smaller; larger
C) larger; smaller
D) larger; larger

Accepted Answer

When two goods are more substitutable, the cross elasticity of demand is larger because a change in the price of one good will lead to a significant change in the quantity demanded of the other. Similarly, the elasticity of demand for Northwest timber will also be larger because consumers will be more responsive to price changes when there are close substitutes available.

Question 20

Suppose Clyde always eats ice cream and chocolate syrup together. If the price of syrup increases by 10 percent, and the cross elasticity of demand is -2, the demand for ice cream
A) increases by 5 percent.
B) increases by 20 percent.
C) decreases by 5 percent.
D) decreases by 20 percent.

Accepted Answer

The cross elasticity of demand is -2, indicating that ice cream and chocolate syrup are complements. A 10% increase in the price of syrup will lead to a 20% decrease in the demand for ice cream (10% * -2 = -20%).

Quiz 4: Elasticity

The income elasticity of demand is a measure of the responsiveness of the

If the cross elasticity of demand is -5 between french fries and orange drink, then french fries

If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the goods must be and the cross elasticity of demand equals .

If a rise in the price of good B increases the quantity demanded of good A

If there is an increase in the price of broccoli because of disastrous weather that destroys about half of this year's spinach crop, which of the following could be TRUE?

If the price of one good increases by 3 percent and the quantity demanded of another good increases by 2 percent, the cross elasticity is and the two goods are .

A rise in the price of good A shifts the good B rightward if the cross elasticity of demand between A and B is .

If the cross elasticity of demand between two goods is -0.56, then a fall in the price of one good leads to a shift in the of the other good.

The cross-elasticity of demand between Homer's Holesome Doughnuts and Krusty's Krispy Crullers is 5.0, which indicates that Homer's doughnuts and Krusty's crullers are

Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what will be the percentage change in the quantity of Dell computers demanded?

Suppose inter-city bus travel is a substitute for transportation by train. Which of the following could then be TRUE?

If goods A and B are complements, then

Dell lowers the price of their PCs by 10 percent. As a result, the quantity of Gateway computers demanded at the current price decreases by 12 percent. What is the cross elasticity of demand for Gateway computers with respect to the price of Dell computers?

If a fall in the price of good A increases the quantity demanded of good B

If the cross elasticity of demand between goods A and B is negative

Based on the following pieces of information, which fast food product do consumers see as the closest substitute for Wendy's Hamburgers?

The cross elasticity of demand between Coca-Cola and Pepsi-Cola is so that Coke and Pepsi are .

Microsoft raises the price of its Office software by 10 percent. As a result, the quantity of personal computers demanded at the current price decreases by 5 percent. What is the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software?

The greater the substitutability between Northwest timber and Southeast timber, the is the cross elasticity of demand between timber from the two regions and the is the elasticity of demand for Northwest timber.

Suppose Clyde always eats ice cream and chocolate syrup together. If the price of syrup increases by 10 percent, and the cross elasticity of demand is -2, the demand for ice cream