Question 1

Linesha,a college student working part-time received a wage increase.An avid movie buff,she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.Based on this information
A)DVDs and Blu-ray discs are substitutes.
B)Blu-ray discs are normal goods and DVDs are inferior goods.
C)DVDs and Blu-ray discs are normal goods.
D)the cross-price elasticity between DVDs and Blu-ray discs is negative.

Accepted Answer

The answer of Linesha,a college student working part-time received a...

Question 2

Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE)sites-Brown County,Wisconsin,and St.Joseph County,Indiana-John Mulford of Rand Research estimates the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners.Using this information,what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites?
A)Housing expenditures will increase significantly.
B)Housing expenditures in HASE sites will fall significantly as recipients move out of these areas to higher-income areas.
C)Housing expenditures will increase,but not significantly.
D)Housing expenditures will decrease by a small amount.

Accepted Answer

The long-run "permanent" income elasticity of housing expenditures for owners is 0.45, indicating that a 1% increase in income leads to a 0.45% increase in housing expenditures. Therefore, if the government increases income transfers to recipients in HASE sites, it is likely that housing expenditures will increase, but not significantly.

Question 3

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result,CineArts Videos experienced a 16 percent decline in its movie club membership.What is the value of the cross-price elasticity between the two movie club memberships?
A)-1.6
B)-0.625
C)0.625
D)1.6

Accepted Answer

The answer of Suppose Tinsel Town Videos lowers the price...

Question 4

According to a study of the U.S.demand for alcoholic beverages,the price elasticity of demand for beer is -0.30.Which of the following could explain why the price elasticity of demand for beer is low?
A)Beer is an inferior alcoholic beverage.
B)More and more people are switching to wine and cocktails rather than beer.
C)The price of beer is relatively low and for many people it is a habit forming product.
D)There are only a few major suppliers of beer.

Accepted Answer

The fact that beer is a habit forming product and its price is relatively low can explain why the price elasticity of demand for beer is low. The low price makes consumers less sensitive to changes in price, and the habit-forming nature of beer means that consumers are likely to continue buying it even if the price increases slightly.

Question 5

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09.This means that
A)an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good.
B)an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.
C)a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.
D)an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a luxury.

Accepted Answer

The answer of Economists estimated that the price elasticity of...

Question 6

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future,the type of firm that would be able to increase its sales if your expectations are met is
A)one that sells an inferior good.
B)one that sells a necessity good.
C)one that sells a luxury good.
D)one that sells a price-inelastic good.

Accepted Answer

A luxury good is something that people will buy more of as their income rises. If the economy booms and average income increases, people will likely have more disposable income to spend on luxury goods, so a firm that sells luxury goods would likely see an increase in sales.

Question 7

Consider the following pairs of items: a.shampoo and conditioner
B.iPhones and earbuds
C.a laptop computer and a desktop computer
D.beef and pork
E.air-travel and weed killer
Which of the pairs listed will have a negative cross-price elasticity?
A)a and b only
B)c and d only
C)e only
D)a,b,and c only

Accepted Answer

The answer of Consider the following pairs of items: a.shampoo...

Question 8

Studies show that the income elasticity of demand for wine is approximately five.What does this mean?
A)A 1 percent decrease in the price of wine leads to a 5 percent increase in wine consumption.
B)A 1 percent increase in income leads to a 5 percent increase in wine consumption.
C)A 5 percent increase in income leads to a 1 percent increase in wine consumption.
D)Wine is a relatively elastic good.

Accepted Answer

Income elasticity of demand measures the responsiveness of demand to a change in income. A positive income elasticity suggests that as income increases, the demand for the good also increases. A coefficient of 5 means that a 1 percent increase in income leads to a 5 percent increase in wine consumption. Therefore, option B is the correct answer.

Question 9

Ali's Gyros operates near a college campus.Ali has been selling 120 gyros a day at $4.50 each and is considering a price cut.He estimates that he would be able to sell 200 gyros per day at $3.50 each.
a.Calculate the price elasticity of demand using the midpoint formula.
b.Calculate the change in revenue as a result of the price cut.

Accepted Answer

The answer of Ali's Gyros operates near a college campus.Ali...

Question 10

Income elasticity measures how a good's quantity demanded responds to
A)change in the goods price.
B)change in the price of another good.
C)change in buyers' incomes.
D)producers' incomes.

Accepted Answer

Income elasticity measures how a good's quantity demanded responds to a change in buyers' incomes.

Question 11

Which of the following items is likely to have the highest income elasticity of demand?
A)a bus ride
B)a meal at Taco Bell
C)a vacation home in the Swiss Alps
D)a tank of gasoline

Accepted Answer

Luxury goods like vacation homes in high-end locations typically have a high income elasticity of demand, meaning that as income increases, demand for the good increases by a relatively large amount.

Question 12

Figure 6-8 
-Refer to Figure 6-8.Identify the two goods which are complements.
A)Good X and Good Y
B)Good Y and Good Z
C)Good X and Good Z
D)It is not possible to distinguish any relationship among the goods.

Accepted Answer

The answer of Figure 6-8 
-Refer to Figure 6-8.Identify the...

Question 13

Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is
A)negative,so Sefton considers potatoes to be an inferior good.
B)positive,so Sefton considers potatoes to be an inferior good.
C)positive,so Sefton considers potatoes to be a normal good and a necessity.
D)negative,so Sefton considers potatoes to be a normal good.

Accepted Answer

The answer of Last year,Sefton purchased 60 pounds of potatoes...

Question 14

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
A)-0.66
B)0.5
C)1.5
D)2

Accepted Answer

Income elasticity of demand = (Percentage change in quantity demanded / Percentage change in income)
= (4% / 8%) = 0.5
Therefore, the answer is B.

Question 15

The Mass Rapid Transit (MRT)System in Hong Kong has been running significant losses.Transport Ministry officials have argued over whether to raise fares to combat the losses.One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours.Suppose that the current fare is $4 and the government is considering raising it to $6.Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day.
a.Using the midpoint formula,what is the estimated elasticity of demand for MRT rides?
b.What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system if the fare increase happens?
c.Last year,the MRT system incurred a loss of $50,000 per day.Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

Accepted Answer

The answer of The Mass Rapid Transit (MRT)System in Hong...

Question 16

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.What does this mean?
A)A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.
B)A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.
C)If the price of grapefruit juice rises by $1,6 more cartons of orange juice will be purchased.
D)The demand for orange juice is 6 times greater than the demand for grapefruit juice.

Accepted Answer

The answer of Suppose the cross-price elasticity of demand between...

Question 17

Consider the following pairs of items: a.shampoo and conditioner
B.iPhones and earbuds
C.a laptop computer and a desktop computer
D.beef and pork
E.air-travel and weed killer
Which of the pairs listed will have cross-price elasticity of zero?
A)a and b only
B)c only since most people cannot do without computers
C)e only
D)none of the pairs listed

Accepted Answer

The answer of Consider the following pairs of items: a.shampoo...

Question 18

If the cross-price elasticity of demand for computers and software is negative,this means the two goods are
A)substitutes.
B)complements.
C)inferior.
D)normal.

Accepted Answer

The answer of If the cross-price elasticity of demand for...

Question 19

Figure 6-8 
-Refer to Figure 6-8.Identify the two goods which are substitutes.
A)Good X and Good Y
B)Good Y and Good Z
C)Good X and Good Z
D)It is not possible to distinguish any relationship among the goods.

Accepted Answer

The answer of Figure 6-8 
-Refer to Figure 6-8.Identify the...

Question 20

Cross-price elasticity of demand is calculated as the
A)percentage change in quantity demanded divided by percentage change in price of a good.
B)percentage change in quantity demanded of one good divided by percentage change in price of a different good.
C)percentage change in quantity sold divided by percentage change in buyers' incomes.
D)percentage change in quantity supplied divided by percentage change in price of a good.

Accepted Answer

Cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to changes in the price of a different good. So, option B is the correct formula to calculate cross-price elasticity of demand.

Quiz 6: Elasticity: the Responsiveness of Demand and Supply

Linesha,a college student working part-time received a wage increase.An avid movie buff,she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.Based on this information

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result,CineArts Videos experienced a 16 percent decline in its movie club membership.What is the value of the cross-price elasticity between the two movie club memberships?

According to a study of the U.S.demand for alcoholic beverages,the price elasticity of demand for beer is -0.30.Which of the following could explain why the price elasticity of demand for beer is low?

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09.This means that

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future,the type of firm that would be able to increase its sales if your expectations are met is

Consider the following pairs of items: a.shampoo and conditioner B.iPhones and earbuds C.a laptop computer and a desktop computer D.beef and pork E.air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity?

Studies show that the income elasticity of demand for wine is approximately five.What does this mean?

Income elasticity measures how a good's quantity demanded responds to

Which of the following items is likely to have the highest income elasticity of demand?

Figure 6-8 -Refer to Figure 6-8.Identify the two goods which are complements.

Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.What does this mean?

Consider the following pairs of items: a.shampoo and conditioner B.iPhones and earbuds C.a laptop computer and a desktop computer D.beef and pork E.air-travel and weed killer Which of the pairs listed will have cross-price elasticity of zero?

If the cross-price elasticity of demand for computers and software is negative,this means the two goods are

Figure 6-8 -Refer to Figure 6-8.Identify the two goods which are substitutes.

Cross-price elasticity of demand is calculated as the