Question 1

What factors would make you more sensitive or less sensitive to price when purchasing petrol?
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Accepted Answer

The answer of What factors would make you more sensitive...

Question 2

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Accepted Answer

Staples such as dairy products and bread are basic necessities that people need to consume regardless of changes in income or prices, making them income and price inelastic.

Question 3

Explain the concepts of cross-price elasticity of demand and income elasticity of demand.What do positive and negative values indicate for each of these demand elasticities?
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Accepted Answer

The answer of Explain the concepts of cross-price elasticity of...

Question 4

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Accepted Answer

The demand for most farm products is relatively inelastic, meaning consumers do not significantly reduce their quantity demanded in response to price increases. Therefore, if a drought reduces the supply, leading to higher prices, total farm revenues are likely to increase, not fall, because the percentage increase in price is greater than the percentage decrease in quantity demanded.

Question 5

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03.This means that________.

Accepted Answer

The negative cross-price elasticity of -0.83 indicates that beer and wine are complements, as the demand for one decreases when the price of the other increases. The positive income elasticity of 5.03 indicates that wine is a luxury good, as demand for it increases more than proportionally as income increases.

Question 6

Suppose a 4 per cent increase in income results in a 2 per cent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.
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Accepted Answer

The answer of Suppose a 4 per cent increase in...

Question 7

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated.

Accepted Answer

If the cross-price elasticity of demand for goods A and B is zero, it means that a change in the price of one good will not result in any change in the demand for the other good. Therefore, the two goods are considered unrelated.

Question 8

Barbara, the consummate hostess, proudly announced as she served dessert, 'A port is often the perfect end to a meal, sipped with a piece of my scrumptious chocolate cake.' Evidently, Barbara views________.

Accepted Answer

Barbara views port and chocolate cake as complementary goods, as she suggests that they are a perfect end to a meal and should be consumed together. She is implying that the flavors of the port and the cake complement each other well.

Question 9

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

Accepted Answer

A positive income elasticity indicates that the good is a normal good, while a negative income elasticity indicates that the good is an inferior good. The income elasticity of 0.8 suggests that canned food is a normal good, but we cannot conclude whether it is inferior or not.

Question 10

A study of the effects of the minimum wage on employment of low-skilled workers estimated the price elasticity of demand for low-skilled workers is -0.75.Suppose that the government is considering raising the minimum wage from $7.25 per hour to $7.75 per hour.Based on this information, calculate the percentage change in the employment of low skilled workers.Use the midpoint formula.
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Accepted Answer

The answer of A study of the effects of the...

Question 11

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03.These elasticities mean that________.

Accepted Answer

The negative cross-price elasticity of demand between beer and spirits indicates that they are complements, as the demand for one decreases when the price of the other increases. The positive income elasticities for spirits and wine, which are greater than 1, indicate that they are considered luxury goods, as demand for them increases more than proportionally with income.

Question 12

Assume that the price elasticity of demand for petrol is -0.06.If the government tax causes the price of petrol to increase by 50 per cent, what will be the decrease in the quantity of petrol demanded?

Accepted Answer

The decrease in the quantity of petrol demanded can be calculated using the price elasticity of demand formula: Percentage Change in Quantity Demanded = Price Elasticity of Demand * Percentage Change in Price. Here, it's -0.06 * 50% = -3%. This means the quantity demanded will decrease by 3%.

Question 13

Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21.This indicates that________.

Accepted Answer

Both wine and spirits have income elasticities greater than 1, which indicates that they are luxury goods. The fact that the income elasticity for wine is higher than for spirits suggests that wine is a higher-income luxury good than spirits.

Question 14

During an economic expansion, as consumer incomes rise, holding everything else constant,

Accepted Answer

During an economic expansion, as consumer incomes rise, the demand for luxuries typically increases because people have more disposable income to spend on non-essential items. Conversely, the demand for inferior goods (goods that people buy more of when their income is lower) tends to decrease because consumers can now afford to buy more desirable substitutes.

Question 15

Suppose the price elasticity of demand for methamphetamine is -0.35.If decriminalisation caused the price of methamphetamine to fall by 75 per cent, what will be the percentage increase in the quantity of methamphetamine demanded? If the price elasticity is -3.5, what will be the percentage increase in quantity demanded?
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Accepted Answer

The answer of Suppose the price elasticity of demand for...

Question 16

Most food products have low income and price elasticities of demand.

Accepted Answer

This is generally true. Food is a necessity and has a relatively low elasticity of demand, meaning that changes in price or income have limited impact on consumer demand. However, there are exceptions to this, such as luxury or specialty food items with higher income elasticities of demand.

Question 17

In the alcohol industry, both wine and spirits are considered to be substitutes for beer.

Accepted Answer

The answer of In the alcohol industry, both wine and...

Question 18

Assume that a 50 per cent petrol tax led to a large increase in its price and only a small decrease in the quantity of petrol demanded.Economic analysis would lead one to conclude that________.

Accepted Answer

The statement reflects that the question of whether petrol should be taxed is a normative issue, which involves judgments about what ought to be. Economic analysis can provide data and projections about the effects of a petrol tax (such as its impact on demand, revenue generated, and potential environmental benefits), but whether these effects are considered beneficial or harmful involves value judgments that go beyond pure economic analysis. Thus, while economics can inform the debate on taxing petrol by analyzing potential outcomes and trade-offs, the decision to tax petrol ultimately involves ethical, environmental, and social considerations that economics alone cannot resolve.

Question 19

In recent years, the prices of new domestically produced cars have been falling.Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel.This information suggests that the cross-price elasticity between new cars and used cars, and the cross-price elasticity between new cars and bus travel are negative.

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. If the demand for used cars and bus travel decreases as the prices of new cars fall, it suggests that these goods are substitutes, not complements, indicating a positive cross-price elasticity.

Question 20

The absolute value of the price elasticity of demand for telescopes is 1.5.Therefore, telescopes can be classified as a luxury.

Accepted Answer

The answer of The absolute value of the price elasticity...

Quiz 4: Elasticity: The Responsiveness of Demand and Supply

What factors would make you more sensitive or less sensitive to price when purchasing petrol? __________________________________________________________________________________________________________________________________________________________________________________________