Question 1

(Table: Market for Mexican Take-Out) When income changes from $1,000 to $1,400 per month, the income elasticity of demand for Mexican take-out meals, computed using the midpoint method at a price of $14 per meal, is: $$\begin{array}{l}
\text { Table: Market for Mexican Take-Out }\
\begin{array} { | l | l | l | } 
\hline \text { Price (per meal) } & \begin{array} { l } 
\text { Quantity of Meals Demanded } \
\text { (income } = \$ 1,000 \text { per month) }
\end{array} & \begin{array} { l } 
\text { Quantity of Meals Demanded } \
\text { (income } = \$ 1,400 \text { per month) }
\end{array} \
\hline 20 & 3 & 7 \
\hline 18 & 4 & 8 \
\hline 16 & 5 & 9 \
\hline 14 & 6 & 10 \
\hline 12 & 7 & 11 \
\hline 10 & 8 & 12 \
\hline 8 & 9 & 13 \
\hline 6 & 10 & 14 \
\hline
\end{array}
\end{array}$$

Accepted Answer

The income elasticity of demand is calculated using the midpoint method: $(Q2 - Q1) / ((Q2 + Q1)/2)$ divided by $(I2 - I1) / ((I2 + I1)/2)$. At $14, quantity changes from 6 to 10, and income from $1,000 to $1,400. The elasticity is $(10 - 6) / ((10 + 6)/2)$ divided by $(1400 - 1000) / ((1400 + 1000)/2)$, which equals 1.5.

Question 2

(Table: Market for Mexican Take-Out) Use Figure: Market for Mexican Take-Out. If income changes from $1,000 to $1,400 per month, the income elasticity of demand, computed using the midpoint method at a price of $10 per Mexican take-out meal, is: $\text { Table: Market for Mexican Take-Out }$
$\begin{array} { | l | l | l | } 
\hline \text { Price (per meal) } & \begin{array} { l } 
\text { Quantity of Meals Demanded } \
\text { (income } = \$ 1,000 \text { per month) }
\end{array} & \begin{array} { l } 
\text { Quantity of Meals Demanded } \
\text { (income } \$ 1,400 \text { per month) }
\end{array} \
\hline 20 & 3 & 7 \
\hline 18 & 4 & 8 \
\hline 16 & 5 & 9 \
\hline 14 & 6 & 10 \
\hline 12 & 7 & 11 \
\hline 10 & 8 & 12 \
\hline 8 & 9 & 13 \
\hline 6 & 10 & 14 \
\hline
\end{array}$

Accepted Answer

The income elasticity of demand is calculated using the midpoint method: $\frac{(Q2 - Q1) / ((Q2 + Q1)/2)}{(I2 - I1) / ((I2 + I1)/2)}$. At $10, Q1 = 8$ and Q2 = 12. Income changes from $1,000 to $1,400. The elasticity is $\frac{(12 - 8) / 10}{(1400 - 1000) / 1200} = 1.2$.

Question 3

(Table: Market for Mexican Take-Out) Use Figure: Market for Mexican Take-Out. If income changes from $1,000 to $1,400 per month, the income elasticity of demand, computed using the midpoint method at a price of $18 per Mexican take-out meal, is: $\text { Table: Market for Mexican Take-Out }$
$\begin{array} { | l | l | l | } 
\hline \text { Price (per meal) } & \begin{array} { l } 
\text { Quantity of Meals Demanded } \
\text { (income } = \$ 1,000 \text { per month) }
\end{array} & \begin{array} { l } 
\text { Quantity of Meals Demanded } \
\text { (income } \$ 1,400 \text { per month) }
\end{array} \
\hline 20 & 3 & 7 \
\hline 18 & 4 & 8 \
\hline 16 & 5 & 9 \
\hline 14 & 6 & 10 \
\hline 12 & 7 & 11 \
\hline 10 & 8 & 12 \
\hline 8 & 9 & 13 \
\hline 6 & 10 & 14 \
\hline
\end{array}$

Accepted Answer

The income elasticity of demand is calculated using the formula: $\text{Income Elasticity} = \frac{\% \text{ Change in Quantity Demanded}}{\% \text{ Change in Income}}$. Using the midpoint method for a price of $18 per meal, the quantity demanded increases from 4 to 8 meals as income increases from $1,000 to $1,400. The percentage change in quantity demanded is $\frac{8 - 4}{(8 + 4)/2} = \frac{4}{6} = 0.67$ or 67%, and the percentage change in income is $\frac{1,400 - 1,000}{(1,400 + 1,000)/2} = \frac{400}{1,200} = 0.33$ or 33%. Thus, the income elasticity of demand is $\frac{0.67}{0.33} = 2$.

Question 4

Which statement is TRUE?

Accepted Answer

The income elasticity of demand measures how sensitive the quantity of a good is to changes in consumers' incomes. It is calculated as the percentage change in the quantity demanded of a good divided by the percentage change in income. A positive value indicates that the good is a normal good, meaning that as income increases, demand for the good also increases. A negative value indicates that the good is an inferior good, meaning that as income increases, demand for the good decreases.

Question 5

Which statement is FALSE?

Accepted Answer

The income elasticity of demand measures the responsiveness of quantity demanded to changes in consumers' incomes, not the other way around. So, statement D is false.

Question 6

(Table: Martinez Family Household Income and Expenditures') Use Table: Martinez Family Household Income and Expenditures. The Martinez's income elasticity of demand for hamburgers is:

Accepted Answer

The answer of (Table: Martinez Family Household Income and Expenditures')...

Question 7

(Table: Martinez Family Household Income and Expenditures) Use Table: Martinez Family Household Income and Expenditures. The Martinez's income elasticity of demand for books is:

Accepted Answer

The answer of (Table: Martinez Family Household Income and Expenditures)...

Question 8

(Table: Martinez Family Household Income and Expenditures) Use Table: Martinez Family Household Income and Expenditures. The Martinez's income elasticity of demand for falafels, computed using the midpoint method, is:

Accepted Answer

The answer of (Table: Martinez Family Household Income and Expenditures)...

Question 9

A 10% decrease in income increases the quantity demanded of online movie rentals by 3%. The income elasticity of demand for online movie rentals is _____, and online movie rentals are a(n) _____ good.

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is (3% / -10%) = -0.3, indicating that online movie rentals are an inferior good, as demand increases when income decreases.

Question 10

Which good is MOST likely to have a vertical supply curve?

Accepted Answer

A vertical supply curve represents a situation where the quantity supplied is completely inelastic, meaning it does not change regardless of the price. Michelangelo's sculptures are a perfect example of this, as no more can be created regardless of the demand or price, making the supply strictly limited and inelastic.

Question 11

Suppose the price of real estate increases by 37.11% in New York City next year. If the quantity of new homes supplied does not change, the price elasticity of _____ will be perfectly _____ in New York City next year.

Accepted Answer

The price elasticity of supply measures how much the quantity supplied responds to a change in price. If the quantity of new homes supplied does not change despite a price increase, it means the supply is perfectly inelastic (i.e., the quantity supplied does not respond at all to price changes).

Question 12

If quantity supplied does not respond substantially to a relatively large change in price, supply is:

Accepted Answer

If quantity supplied does not respond substantially to a relatively large change in price, supply is considered to be inelastic. This means that even if the price of a good increases or decreases by a large amount, the quantity supplied will not change much.

Question 13

If the price elasticity of supply is greater than zero but less than one, then supply is:

Accepted Answer

If the price elasticity of supply is greater than zero but less than one, then supply is inelastic. This means that the percentage change in quantity supplied is less than the percentage change in price. In other words, suppliers are not very responsive to price changes, and a small change in price will result in a relatively smaller change in the quantity supplied.

Question 14

(Figure: Supply Curve for Hotel Rooms) Use Figure: Supply Curve for Hotel Rooms. The figure depicts a supply curve that is:

Accepted Answer

The answer of (Figure: Supply Curve for Hotel Rooms) Use...

Question 15

(Figure: Supply Curve for Peaches) Use Figure: Supply Curve for Peaches. The figure depicts a supply curve that is:

Accepted Answer

The answer of (Figure: Supply Curve for Peaches) Use Figure:...

Question 16

(Figure: Supply Curve for Olive Oil) Use Figure: Supply Curve for Olive Oil. The figure depicts a supply curve that is:

Accepted Answer

The answer of (Figure: Supply Curve for Olive Oil) Use...

Question 17

The price elasticity of supply for a good is 2 if a _____ in price leads to a 4% decrease in the quantity supplied.

Accepted Answer

Price elasticity of supply is calculated as the percentage change in quantity supplied divided by the percentage change in price. If the elasticity is 2, then a 2% decrease in price would lead to a 4% decrease in quantity supplied (4% / 2% = 2).

Question 18

Arnie recently purchased the Mill Town Square Mall in Philadelphia. Attempting to explain the elasticity of supply to shop owners in the mall, he tells them that the price elasticity of supply measures:

Accepted Answer

The price elasticity of supply measures the degree of responsiveness of quantity supplied to changes in price. It is a measure of how much the quantity supplied of a good or service changes in response to a change in its price. It helps businesses understand how much they should increase or decrease their supply of a product as its price changes in the market.

Question 19

If the price elasticity of supply is:

Accepted Answer

The price elasticity of supply measures how much the quantity supplied of a good responds to a change in the price of that good. If the elasticity is between zero and one, it means that the percentage change in quantity supplied is less than the percentage change in price, indicating that supply is inelastic.

Question 20

Which statement is likely to be associated with an elastic supply?

Accepted Answer

An elastic supply means that the quantity supplied can easily and quickly respond to changes in price. This is usually the case when inputs for production are readily available and can be increased without significant cost or delay. Therefore, choice B is the most likely statement associated with an elastic supply.

Quiz 5: Elasticity: Measuring Responsiveness