Question 1

Cross-price elasticity of demand is defined as the:

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The answer of Cross-price elasticity of demand is defined as...

Question 2

Refer to the graph shown. Demand is unit elastic when revenue is:

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The answer of Refer to the graph shown. Demand is...

Question 3

Income elasticity is defined as the:

Accepted Answer

Income elasticity measures how the quantity demanded of a good responds to changes in consumer income, calculated as the percentage change in demand divided by the percentage change in income.

Question 4

The Honolulu tourism commission proposed a 6 percent tax on hotel rooms to pay for an outdoor amphitheater. A Purdue University economist estimates that the tax would result in a 6 percent increase in the price of hotel rooms. If the elasticity of demand is 1.33, what is the expected change in quantity demanded?

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The answer of The Honolulu tourism commission proposed a 6...

Question 5

Refer to the graph shown. When price increases from $4 to $6, total revenue:

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The answer of Refer to the graph shown. When price...

Question 6

Refer to the graph shown. Area C plus area E is:

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The answer of Refer to the graph shown. Area C...

Question 7

It is estimated that a 10 percent decline in income will reduce cigarette smoking by 1.4 percent. From this information one can conclude that cigarettes are most likely:

Accepted Answer

Cigarettes are likely a necessity because the percentage decrease in consumption (1.4%) is smaller than the percentage decrease in income (10%), indicating that people continue to purchase them despite lower income.

Question 8

For normal goods, income elasticity is:

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Normal goods have a positive income elasticity of demand, meaning that as income increases, the demand for these goods also increases.

Question 9

Refer to the graph shown. Area F is:

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The answer of Refer to the graph shown. Area F...

Question 10

Refer to the graph shown. Between points A and B, demand is:

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The answer of Refer to the graph shown. Between points...

Question 11

For necessities, income elasticity is any value:

Accepted Answer

Necessities have an income elasticity of demand between 0 and 1, indicating that as income increases, the demand for these goods increases, but at a slower rate than the increase in income.

Question 12

Refer to the graph shown. At point D demand is:

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The answer of Refer to the graph shown. At point...

Question 13

For luxuries, income elasticity is:

Accepted Answer

Income elasticity for luxuries is greater than 1, indicating that as income increases, the demand for luxury goods increases by a proportionally larger amount.

Question 14

Refer to the graph shown. Total revenue is at a maximum when price is:

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The answer of Refer to the graph shown. Total revenue...

Question 15

Along a straight-line demand curve, total revenue is the highest when elasticity of demand is:

Accepted Answer

Total revenue is maximized when the price elasticity of demand is unitary (equal to 1), meaning that the percentage change in quantity demanded is equal to the percentage change in price.

Question 16

An economist estimates that with every 15 percent increase in income, the quantity of turkey purchased declines by 1.8 percent. From this information one would conclude that turkey is:

Accepted Answer

Turkey is an inferior good because as income increases, the quantity purchased decreases, indicating a negative income elasticity of demand.

Question 17

An economist estimates that with every 20 percent increase in income, the quantity of grapes purchased rises by 11.2 percent. From this information one would conclude that grapes are:

Accepted Answer

A normal good is one where the quantity demanded increases as income increases. Since the quantity of grapes purchased rises with an increase in income, grapes are considered a normal good.

Question 18

An economist estimates that on average, for every 1 percent increase in income, the quantity of European cars demanded increases by 1.93 percent. From this information one can conclude that European cars are:

Accepted Answer

European cars are considered a luxury because the income elasticity of demand is greater than 1, indicating that demand for these cars increases more than proportionately as income rises.

Question 19

Refer to the graph shown. When price rises from $10 to $30:

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