Question 1

-Refer to Figure 5 -6. Identify the two goods which are substitutes.

Accepted Answer

The answer of 
-Refer to Figure 5 -6. Identify the...

Question 2

In September 2006, the Food and Drug Administration recommended that Americans avoid eating bagged raw spinach in the wake of an outbreak of E. coli bacteria. Following this recommendation, the food industry looked at alternatives and many turned to arugula. One Chicago distributor claims, "The sale of the stuff has gone through the roof." Based on this information,

Accepted Answer

The increase in demand for arugula as a result of the decrease in demand for spinach suggests that arugula is a substitute for spinach, which is indicated by a positive cross price elasticity.

Question 3

Suppose a Nurses Union successfully secured a 12 percent increase in the wages of registered nurses. If a hospital responds by reducing the quantity of registered nurses hired and increasing the quantity of physician's assistants hired, what conclusion can you draw?

Accepted Answer

The hospital's response to increase the hiring of physician's assistants as a result of the wage increase for registered nurses indicates that these two types of healthcare workers are substitutes for each other. A positive cross-price elasticity of demand signifies that as the price (wage in this case) of one good (registered nurses) increases, the demand for the substitute good (physician's assistants) also increases.

Question 4

Hala, an expert in making desserts, made the following statement: "A cup of tea with mint is often the perfect end to a meal, sipped with a piece of my delicious chocolate cake." Evidently, Hala views

Accepted Answer

Hala's statement implies that tea with mint and chocolate cake enhance each other's enjoyment when consumed together, making them complementary goods.

Question 5

Suppose that the short run price elasticity of demand for oil is -0.26. Which of the following could explain why the price elasticity of demand for oil is low?

Accepted Answer

The low price elasticity of demand for oil (-0.26) suggests that consumers' demand for oil does not change much with price changes. This can be explained by the lack of close substitutes for oil, making it difficult for consumers to switch to other sources of energy when oil prices increase, hence choice A is correct. Choices B, C, and D do not directly relate to the concept of price elasticity of demand.

Question 6

Which of the following is one reason why, in early 2008, Microsoft announced a price cut on boxed copies of its operating systems Windows Vista Home Basic, Windows Vista Home Premium, and Windows Vista Ultimate in the Gulf region?

Accepted Answer

The demand for stand-alone Windows software is price elastic for less technology-enthusiastic consumers, meaning that a decrease in price could lead to a significant increase in the quantity demanded by these consumers. This is a common reason for price cuts, aiming to boost sales among price-sensitive customers.

Question 7

The demand for Microsoft Windows products is relatively inelastic. Damage that reduces the supply of Microsoft Windows products will also cause Microsoft revenues to fall.

Accepted Answer

The demand for Microsoft Windows products is relatively inelastic, meaning consumers' purchase quantities do not significantly change with price changes. Therefore, if the supply of Microsoft Windows products is reduced, leading to higher prices, total revenue for Microsoft could actually increase or remain unchanged because the quantity demanded decreases only slightly or remains stable, while prices increase.

Question 8

Suppose that the price of a money clip increases from US$0.75 to US$0.90 and quantity supplied rises from 8,000 units to 10,000 units. Use the midpoint formula to calculate the price elasticity of supply.

Accepted Answer

The midpoint formula for elasticity is given by the percentage change in quantity supplied divided by the percentage change in price. Using the midpoint formula, the change in quantity supplied is (10,000 - 8,000) / ((10,000 + 8,000) / 2) = 2,000 / 9,000 = 2/9. The change in price is (0.90 - 0.75) / ((0.90 + 0.75) / 2) = 0.15 / 0.825 = 2/11. The price elasticity of supply is therefore (2/9) / (2/11) = 22/18 = 1.22.

Question 9

-Refer to Figure 5 -7. A perfectly elastic supply curve is shown in

Accepted Answer

The answer of 
-Refer to Figure 5 -7. A perfectly...

Question 10

-Refer to Figure 5 -7. A perfectly inelastic supply curve is shown in

Accepted Answer

A perfectly inelastic supply curve is vertical, indicating that the quantity supplied does not change regardless of the price. Panel A shows a vertical supply curve.

Question 11

-Refer to Figure 5 -7. A unit elastic supply curve is shown in

Accepted Answer

A unit elastic supply curve is represented by a straight line passing through the origin, as shown in Panel C. This indicates that the percentage change in quantity supplied is equal to the percentage change in price.

Quiz 5: Elasticity: The Responsiveness of Demand and Supply