Question 1

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year,the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80.Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie,the quantity demanded of Sue's Subs increases from 80 to 100.Suppose also that when the average student's income increases to $12,000 per year,the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1.Using the midpoint method,what is the income elasticity of demand for pizza and what does the value indicate about the demand for pizza?
A)The income elasticity is 0.18 so pizza is a normal good.
B)The income elasticity is -1 so pizza is an inferior good.
C)The income elasticity is 1 so pizza is unitary elastic.
D)The income elasticity is 1 so pizza is a normal good.

Accepted Answer

Using the midpoint method formula:
Income elasticity of demand for pizza = ((60-50) / ((60+50)/2)) / ((12,000-10,000) / ((12,000+10,000)/2)) 
= (0.10 / (2,000/11,000)) 
= 0.605
Since the value is greater than zero and less than 1, it indicates that pizza is a normal good, meaning that as income increases, the demand for pizza also increases but at a slower rate.

Question 2

If the cross-price elasticity of demand for two goods is -4.5,then
A)the two goods are substitutes.
B)the two goods are complements.
C)one of the goods is normal while the other good is inferior.
D)one of the goods is a luxury while the other good is a necessity.

Accepted Answer

A negative cross-price elasticity of demand indicates that the two goods are complements, meaning that an increase in the price of one good leads to a decrease in the demand for the other good.

Question 3

Suppose that when the price of good X falls from $6 to $4,the quantity demanded of good Y rises from 30 units to 40 units.Using the midpoint method,the cross-price elasticity of demand is
A)-0.71,and X and Y are complements.
B)-1.40,and X and Y are complements.
C)-0.71,and X and Y are substitutes.
D)-1.40,and X and Y are substitutes.

Accepted Answer

The cross-price elasticity of demand is calculated using the midpoint method as [(40-30)/((40+30)/2)] / [(4-6)/((4+6)/2)] = 0.71. Since the elasticity is negative, X and Y are complements.

Question 4

Scenario 5-2
Suppose the demand function for good X is given by:  where  is the quantity demanded of good X,  is the price of good X,and  is the price of good Y,which is related to good X.
-Refer to Scenario 5-2.Using the midpoint method,if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8,the cross price elasticity of demand is about
A)0.57,and X and Y are substitutes.
B)-0.22,and X and Y are complements.
C)-0.80,and X and Y are complements.
D)-2.57,and X and Y are complements.

Accepted Answer

The answer of Scenario 5-2
Suppose the demand function for good...

Question 5

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50.This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to
A)fall by 8 percent.
B)fall by 50 percent.
C)rise by 8 percent.
D)rise by 50 percent.

Accepted Answer

The cross-price elasticity of demand is a measure of the responsiveness of the quantity demanded of one good to a change in the price of another good. A negative cross-price elasticity indicates that the two goods are complements, meaning that an increase in the price of one good will cause a decrease in the quantity demanded of the other good.

In this case, a cross-price elasticity of -2.50 means that a 1% increase in the price of peanut butter will cause a 2.5% decrease in the quantity of jelly purchased. Therefore, a 20% increase in peanut butter prices will cause the quantity of jelly purchased to fall by:

2.5% x 20 = 50%

Thus, the correct answer is B.

Question 6

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound.She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound.Maddy's cross-price elasticity of demand for beans and rice is
A)0.71,and they are substitutes.
B)-0.71,and they are complements.
C)1.4,and they are substitutes.
D)-1.4,and they are complements.

Accepted Answer

The cross-price elasticity of demand 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-price elasticity of demand for beans and rice is calculated as:```(Q1 - Q2) / (P1 - P2) * (P2 / Q2)```where:* Q1 is the quantity of beans demanded when the price of beans is $2 per pound* Q2 is the quantity of beans demanded when the price of beans is $3 per pound* P1 is the price of beans when the quantity demanded is Q1* P2 is the price of beans when the quantity demanded is Q2Substituting the values into the formula, we get:```(2 - 1) / (2 - 3) * (3 / 1) = -0.71```Therefore, the cross-price elasticity of demand for beans and rice is -0.71, which means that beans and rice are substitutes.

Question 7

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year,the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80.Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie,the quantity demanded of Sue's Subs increases from 80 to 100.Suppose also that when the average student's income increases to $12,000 per year,the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1.What can you deduce about the type of good Patty's Pizza is and about the relationship between Patty's Pizza and Sue's Subs?
A)Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are substitutes.
B)Patty's Pizza is a normal good and Patty's Pizza and Sue's Subs are complements.
C)Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are substitutes.
D)Patty's Pizza is an inferior good and Patty's Pizza and Sue's Subs are complements.

Accepted Answer

The fact that the quantity demanded of Patty's Pizza increases when the average student's income increases suggests that it is a normal good. Additionally, the fact that the quantity demanded of Sue's Subs increases when the price of Patty's Pizza increases suggests that they are substitutes.

Question 8

Last month,sellers of good Y took in $100 in total revenue on sales of 50 units of good Y.This month sellers of good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y.At the same time,the price of good X stayed the same,but sales of good X increased from 20 units to 40 units.We can conclude that goods X and Y are
A)substitutes,and have a cross-price elasticity of 0.60.
B)complements,and have a cross-price elasticity of -0.60.
C)substitutes,and have a cross-price elasticity of 1.67.
D)complements,and have a cross-price elasticity of -1.67.

Accepted Answer

The answer of Last month,sellers of good Y took in...

Question 9

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00.This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to
A)fall by 200 percent.
B)fall by 40 percent.
C)rise by 200 percent.
D)rise by 40 percent.

Accepted Answer

The cross-price elasticity of demand between two goods measures the responsiveness of the quantity demanded of one good to a change in the price of the other good. A negative cross-price elasticity of demand indicates that the two goods are complements, meaning that an increase in the price of one good leads to a decrease in the quantity demanded of the other good. In this case, a 20% increase in the price of hot dogs will lead to a 40% decrease in the quantity of mustard purchased, because the cross-price elasticity of demand between hot dogs and mustard is -2.00. Therefore, the correct answer is B.

Question 10

The price elasticity of demand for bread is
A)computed as the change in the price of bread divided by the change in the quantity demanded of bread.
B)independent of the availability of close substitutes.
C)influenced by whether consumers view bread as a necessity or luxury.
D)All of the above are correct.

Accepted Answer

The price elasticity of demand is influenced by whether consumers view a good as a necessity or luxury, as this affects how sensitive they are to price changes.

Question 11

The demand for a good becomes more inelastic
A)as more close substitutes for it become available.
B)as it is increasingly viewed as a luxury good.
C)as the market is defined more broadly.
D)the longer the time horizon.

Accepted Answer

When the market is defined more broadly, there are fewer substitutes available, making the demand for the good more inelastic.

Question 12

For which pairs of goods is the cross-price elasticity most likely to be positive?
A)peanut butter and jelly
B)bicycle frames and bicycle tires
C)pens and pencils
D)college textbooks and iPods

Accepted Answer

Pens and pencils are substitute goods, meaning that an increase in the price of one is likely to lead to an increase in the demand for the other, resulting in a positive cross-price elasticity.

Question 13

For which pairs of goods is the cross-price elasticity most likely to be negative?
A)peanut butter and jelly
B)automobile tires and coffee
C)pens and pencils
D)paperback novels and electronic books for e-readers

Accepted Answer

Peanut butter and jelly 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.

Question 14

If the cross-price elasticity of demand for two goods is 1.25,then
A)the two goods are luxuries.
B)the two goods are substitutes.
C)one of the goods is normal and the other good is inferior.
D)the demand for one of the goods conforms to the law of demand,but the demand for the other good violates the law of demand.

Accepted Answer

A cross-price elasticity of demand of 1.25 indicates that the two goods are substitutes. This is because an increase in the price of one good leads to an increase in the quantity demanded of the other good. If the goods were complements, then the cross-price elasticity of demand would be negative. If the goods were both normal or both inferior, then the cross-price elasticity of demand would be less than 1. If the goods were both luxuries, then the cross-price elasticity of demand could be greater than 1, but this would not necessarily be the case.

Question 15

Which of the following is likely to have the most price elastic demand?
A)laptop computers
B)tablets
C)Microsoft® Surface tablets
D)cell phones

Accepted Answer

Microsoft® Surface tablets are a specific brand within the broader category of tablets, making them more substitutable and thus likely to have more price elastic demand compared to the broader categories of laptops, tablets, or cell phones.

Question 16

Scenario 5-1
Suppose that when the average college student's income is $10,000 per year,the annual quantity demanded of Patty's Pizza is 50 and the annual quantity demanded of Sue's Subs is 80.Suppose that when the price of Patty's Pizza increases from $8 to $10 per pie,the quantity demanded of Sue's Subs increases from 80 to 100.Suppose also that when the average student's income increases to $12,000 per year,the annual quantity demanded of Patty's Pizza increases from 50 to 60.
-Refer to Scenario 5-1.Using the midpoint method,the cross price elasticity of demand is
A)about 0.22,and the two goods are substitutes.
B)about -0.005,and the two goods are complements.
C)1,and the two goods are substitutes.
D)1,and the two goods are unitary elastic.

Accepted Answer

The cross price elasticity of demand is calculated as the percentage change in the quantity demanded of one good divided by the percentage change in the price of another good. Using the midpoint method, the percentage change in quantity demanded of Sue's Subs is (100-80)/((100+80)/2) = 0.25, and the percentage change in price of Patty's Pizza is (10-8)/((10+8)/2) = 0.25. Thus, the cross price elasticity is 0.25/0.25 = 1, indicating the goods are substitutes.

Question 17

Suppose that when the price of good X falls from $10 to $8,the quantity demanded of good Y rises from 20 units to 25 units.Using the midpoint method,the cross-price elasticity of demand is
A)-1.0,and X and Y are complements.
B)-1.0,and X and Y are substitutes.
C)1.0,and X and Y are complements.
D)1.0,and X and Y are substitutes.

Accepted Answer

The answer of Suppose that when the price of good...

Question 18

Which of the following is likely to have the most price elastic demand?
A)milk
B)sailboats
C)good X in the short run compared to good X in the long run
D)gasoline

Accepted Answer

Sailboats are luxury goods and have many substitutes, so consumers are likely to be more responsive to changes in price compared to essential goods like milk and gasoline. In the short run, consumers may not have many alternatives to good X, but in the long run, they may be able to find substitutes or change their consumption habits, making the demand less elastic.

Question 19

Suppose that when the price of good X increases from $800 to $850,the quantity demanded of good Y increases from 65 to 70.Using the midpoint method,the cross price elasticity of demand is about
A)-1.2,and X and Y are complements.
B)-0.1,and X and Y are complements.
C)0.1,and X and Y are substitutes.
D)1.2,and X and Y are substitutes.

Accepted Answer

The answer of Suppose that when the price of good...

Question 20

Which of the following statements is correct?
A)The demand for medicine is more elastic than the demand for sailboats.
B)The demand for iPads is more elastic than the demand for tablets in general.
C)The demand for cell phones is more elastic over a short period of time than over a long period of time.
D)All of the above are correct.

Accepted Answer

The demand for specific brands (like iPads) is generally more elastic than for the category as a whole (tablets) because consumers can switch to other brands if the price of iPads increases.

Quiz 5: Elasticity and Its Applications: The Elasticity of Demand

If the cross-price elasticity of demand for two goods is -4.5,then

Suppose that when the price of good X falls from $6 to $4,the quantity demanded of good Y rises from 30 units to 40 units.Using the midpoint method,the cross-price elasticity of demand is

Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50.This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound.She purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound.Maddy's cross-price elasticity of demand for beans and rice is

Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00.This implies that a 20 percent increase in the price of hot dogs will cause the quantity of mustard purchased to

The price elasticity of demand for bread is

The demand for a good becomes more inelastic

For which pairs of goods is the cross-price elasticity most likely to be positive?

For which pairs of goods is the cross-price elasticity most likely to be negative?

If the cross-price elasticity of demand for two goods is 1.25,then

Which of the following is likely to have the most price elastic demand?

Suppose that when the price of good X falls from $10 to $8,the quantity demanded of good Y rises from 20 units to 25 units.Using the midpoint method,the cross-price elasticity of demand is

Which of the following is likely to have the most price elastic demand?

Suppose that when the price of good X increases from $800 to $850,the quantity demanded of good Y increases from 65 to 70.Using the midpoint method,the cross price elasticity of demand is about

Which of the following statements is correct?