Question 1

If the cross elasticity of demand for good A with respect to good B is -0.87, then good A is
A)an inferior good.
B)a normal good.
C)a substitute for good B.
D)a complement to good B.

Accepted Answer

The negative cross elasticity of demand indicates that as the price of good B increases, the demand for good A decreases, which means that goods A and B are complements to each other.

Question 2

If goods A and B have a cross elasticity of demand that is positive, this is evidence that goods A and B are __________ goods.
A)complementary
B)substitute
C)normal
D)inferior

Accepted Answer

When the cross elasticity of demand between two goods is positive, it means that as the price of one good increases, the demand for the other good also increases. This relationship is characteristic of substitute goods, as consumers switch to the substitute when the price of the other good rises.

Question 3

If the price of good A decreases by 10 percent and the quantity demanded of good B decreases by 10 percent, this is evidence that goods A and B are
A)substitutes for one another.
B)complement goods to one another.
C)both inferior goods.
D)both normal goods.
E)not related.

Accepted Answer

When the price of good A decreases, the quantity demanded of good B decreases, indicating that goods A and B are substitutes for one another.

Question 4

Income elasticity of demand for a normal good is always
A)less than zero.
B)greater than zero.
C)equal to zero.
D)less than one.

Accepted Answer

Income elasticity of demand for a normal good is always greater than zero, indicating that as income increases, the demand for the good increases.

Question 5

Cross elasticity of demand measures the responsiveness of changes in the quantity __________ of one good to changes in __________.
A)demanded; the price of the same good
B)demanded; income
C)demanded; the price of another good
D)supplied; the price of the same good
E)none of the above

Accepted Answer

Cross elasticity of demand measures how the quantity demanded of one good responds to changes in the price of another good, indicating the relationship between two different goods rather than changes in price or income affecting the same good.

Question 6

The longer the period of time consumers have to adjust to price changes, the __________ the __________ elasticity of demand.
A)lower, price
B)lower, income
C)higher, price
D)higher, income

Accepted Answer

The longer the period of time consumers have to adjust to price changes, the higher the price elasticity of demand. This is because consumers have more time to find substitutes or alter their consumption habits in response to price changes.

Question 7

If the cross elasticity of demand for good A with respect to good B is +2.7, then good A is
A)an inferior good.
B)a normal good.
C)a substitute for good B.
D)a complement to good B.

Accepted Answer

A positive cross elasticity of demand indicates that as the price of good B increases, the demand for good A increases, suggesting that goods A and B are substitutes for each other.

Question 8

Vernon spends the following percentages of his budget on the goods A, B, C, and D: 23 percent on good A, 11 percent on good B, 1 percent on good C, and 3 percent on good D. For which good is price elasticity of demand the highest, ceteris paribus?
A)good A
B)good B
C)good C
D)good D

Accepted Answer

The answer of Vernon spends the following percentages of his...

Question 9

Which of the following statements is false?
A)If the income elasticity of demand for a good is less than 1, the demand for the good is income inelastic.
B)If the income elasticity of demand for a good is greater than 1, the demand for the good is income elastic.
C)If the income elasticity of demand for a good is equal to 1, the demand for the good is income unit elastic.
D)If the income elasticity of demand for a good is less than zero, the good is a normal good.
E)A good can be both a normal good and income inelastic.

Accepted Answer

Income elasticity of demand less than zero indicates that the good is an inferior good, not a normal good. Normal goods have a positive income elasticity of demand.

Question 10

If the price of a good rises and as a result total revenue falls, then it must be true that
A)cross elasticity of demand for the good is negative.
B)price elasticity of demand for the good is less than 1.
C)income elasticity of demand for the good is positive.
D)b and c
E)none of the above

Accepted Answer

If the price of a good rises and total revenue falls, it indicates that the price elasticity of demand is greater than 1 (elastic demand), not less than 1. Therefore, none of the given options correctly describe this scenario.

Question 11

If Jack bought 18 CDs last year when his income was $20,000 and he buys 19 CDs this year when his income is $25,000, then for Jack CDs are
A)an inferior good.
B)a normal good.
C)a substitute good.
D)a complementary good.
E)There is not enough information to answer this question.

Accepted Answer

A normal good is one for which demand increases as income increases. Since Jack buys more CDs as his income rises, CDs are a normal good for him.

Question 12

If Cassandra bought 12 blouses last year when her income was $46,000 and she buys 14 blouses this year when her income is $52,000, then her income elasticity of demand for blouses is approximately
A)-1.26.
B)+1.26.
C)-0.80.
D)+0.80.
E)-2.52.

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, the change in quantity demanded is from 12 to 14 blouses, which is an increase of 2 blouses on the original 12, or a 16.67% increase. The change in income is from $46,000 to $52,000, which is an increase of $6,000 on the original $46,000, or a 13.04% increase. Thus, the income elasticity of demand = (16.67% / 13.04%) = approximately +1.26, indicating that blouses are a normal good (positive income elasticity) and that the demand for blouses increases by approximately 1.26% for every 1% increase in income.

Question 13

If two goods are substitute goods,
A)an increase in the price of one will cause a decrease in the demand for the other.
B)an increase in the price of one will cause an increase in the demand for the other.
C)the price elasticity of demand for both goods will be greater than 1.
D)the price elasticity of demand for both goods will be less than 1.

Accepted Answer

When two goods are substitutes, an increase in the price of one good will lead to an increase in the demand for the other good, as consumers switch to the more affordable alternative.

Question 14

The shorter the period of time consumers have to adjust to price changes, the __________ the __________ elasticity of demand.
A)lower; income
B)lower; price
C)higher; income
D)higher; price

Accepted Answer

The shorter the period of time consumers have to adjust to price changes, the lower the price elasticity of demand. This is because consumers need time to find substitutes or adjust their consumption habits in response to price changes.

Question 15

If the cross elasticity of demand for two goods is negative,
A)one of the goods is necessarily a normal good, and the other good is necessarily an inferior good.
B)both goods are normal goods.
C)the goods are substitutes.
D)the goods are complements.

Accepted Answer

When the cross elasticity of demand for two goods is negative, it means that as the price of one good increases, the demand for the other good decreases, indicating that the goods are complements.

Question 16

Cross elasticity of demand is the percentage change in the quantity __________ of a good divided by the percentage change in __________.
A)demanded; the price of the good
B)supplied; the price of the good
C)demanded; the price of another good
D)supplied; the price of another good
E)demanded; income

Accepted Answer

Cross elasticity of demand measures the responsiveness of the quantity demanded for one good in relation to a change in the price of another good.

Question 17

A good will tend to have a low price elasticity of demand if
A)the good has few substitutes.
B)a person spends a high percentage of his or her budget on the good.
C)a person has a long period of time to adjust to price changes.
D)the good is a luxury.

Accepted Answer

Goods with few substitutes tend to have a low price elasticity of demand because consumers have fewer alternatives to switch to if the price of the good increases, making their demand less sensitive to price changes.

Question 18

If Jack bought 12 DVDs last year when his income was $40,000 and he buys 14 DVDs this year when his income is $43,000, then his income elasticity of demand is ______________ which means that DVDs are a(n) ______________ good for Jack.
A)+0.41; normal
B)-0.47; inferior
C)+2.13; normal
D)+0.59; inferior
E)-2.13; inferior

Accepted Answer

The answer of If Jack bought 12 DVDs last year...

Question 19

If Casey bought 16 cotton t-shirts last year when her income was $40,000 and she buys 14 cotton t-shirts this year when her income is $45,000, then for Casey cotton t-shirts are
A)an inferior good.
B)a normal good.
C)a substitute good.
D)a complementary good.
E)There is not enough information to answer this question.

Accepted Answer

Casey buys fewer t-shirts as her income increases, indicating that cotton t-shirts are an inferior good for her.

Question 20

If the price of good A decreases by 10 percent and the quantity demanded of good B increases by 10 percent, this is evidence that goods A and B are
A)substitute for one another.
B)complement goods to one another.
C)both inferior goods.
D)both normal goods.
E)not related.

Accepted Answer

When the price of good A decreases and the quantity demanded of good B increases, it indicates that the two goods are complements. This means that consumers buy more of good B when good A becomes cheaper, suggesting that they are used together.

Quiz 19: Elasticity

If the cross elasticity of demand for good A with respect to good B is -0.87, then good A is

If goods A and B have a cross elasticity of demand that is positive, this is evidence that goods A and B are __________ goods.

If the price of good A decreases by 10 percent and the quantity demanded of good B decreases by 10 percent, this is evidence that goods A and B are

Income elasticity of demand for a normal good is always

Cross elasticity of demand measures the responsiveness of changes in the quantity of one good to changes in .

The longer the period of time consumers have to adjust to price changes, the the elasticity of demand.

If the cross elasticity of demand for good A with respect to good B is +2.7, then good A is

Vernon spends the following percentages of his budget on the goods A, B, C, and D: 23 percent on good A, 11 percent on good B, 1 percent on good C, and 3 percent on good D. For which good is price elasticity of demand the highest, ceteris paribus?

Which of the following statements is false?

If the price of a good rises and as a result total revenue falls, then it must be true that

If Jack bought 18 CDs last year when his income was $20,000 and he buys 19 CDs this year when his income is $25,000, then for Jack CDs are

If Cassandra bought 12 blouses last year when her income was $46,000 and she buys 14 blouses this year when her income is $52,000, then her income elasticity of demand for blouses is approximately

If two goods are substitute goods,

The shorter the period of time consumers have to adjust to price changes, the the elasticity of demand.

If the cross elasticity of demand for two goods is negative,

Cross elasticity of demand is the percentage change in the quantity of a good divided by the percentage change in .

A good will tend to have a low price elasticity of demand if

If Jack bought 12 DVDs last year when his income was $40,000 and he buys 14 DVDs this year when his income is $43,000, then his income elasticity of demand is which means that DVDs are a(n) good for Jack.

If Casey bought 16 cotton t-shirts last year when her income was $40,000 and she buys 14 cotton t-shirts this year when her income is $45,000, then for Casey cotton t-shirts are

If the price of good A decreases by 10 percent and the quantity demanded of good B increases by 10 percent, this is evidence that goods A and B are