Question 1

Which of the following pairs best represents substitute goods?

Accepted Answer

Substitute goods are products that can be used in place of each other. Hamburgers and hot dogs are both popular choices for similar occasions, such as barbecues or fast food, making them substitutes as consumers may choose one over the other based on preference, price, or availability.

Question 2

Breakfast anyone? Which of the following pairs best represents complementary goods?

Accepted Answer

Bacon and eggs are complementary goods because the consumption of one enhances the consumption of the other, often consumed together as part of a traditional breakfast.

Question 3

An increase in the price of good X causes the demand curve for good Y to shift to the left. We know then that

Accepted Answer

When the price of good X increases and causes the demand for good Y to decrease (shift to the left), it indicates that goods X and Y are used together, meaning they are complementary goods. This is because consumers are less willing or able to buy good Y when the price of its complement, good X, increases.

Question 4

When economists look at the percentage change in quantity demanded for air travel generated by a change in income, they are looking at the

Accepted Answer

The percentage change in quantity demanded for a good (in this case, air travel) resulting from a change in income is referred to as the income elasticity of demand. This measures how sensitive the demand for a good is to changes in consumers' income.

Question 5

If a 1 percent change in income generates a greater than 1 percent change in quantity demanded for boat rentals, then the demand for boat rentals

Accepted Answer

The demand for boat rentals is income elastic because a greater than 1 percent change in quantity demanded in response to a 1 percent change in income indicates that the good is highly responsive to income changes, which is the definition of income elasticity.

Question 6

If the income elasticity of demand for a Snickers bar is 0.59, then we know that within the relevant price range for Snickers bars, it is

Accepted Answer

Income elasticity of demand measures how the quantity demanded of a good responds to a change in income. A value between 0 and 1 (0.59 in this case) indicates that the good is a necessity (income inelastic), meaning demand increases with income, but at a slower rate than income increases.

Question 7

Families go through good times and bad times financially. It's now bad times for the Althoff family. The family buys more macaroni because its principal income earner has been laid off work for several months. This means that the Althoffs'

Accepted Answer

The Althoffs' income has decreased, and they are buying more macaroni. This means that their income elasticity for macaroni is negative.

Question 8

Engel's law states that income elasticities are

Accepted Answer

Engel's law posits that as income rises, the proportion of income spent on food falls, even if absolute expenditure on food rises. This implies that the income elasticity of demand for food is less than one, meaning that food is a necessity good whose consumption increases less proportionately than income.

Question 9

Engel's law suggests that the demand for food is

Accepted Answer

Engel's law states that as income rises, the proportion of income spent on food falls, even if absolute expenditure on food rises. This implies that food is a necessity with low income elasticity of demand, making it income inelastic.

Question 10

Which of the following is not an inferior good?

Accepted Answer

Inferior goods are those for which demand decreases as consumer income rises, as people opt for higher-quality substitutes. Butter, unlike navy beans, black and white televisions, cheap wine, and used textbooks, is generally not considered an inferior good because its demand does not necessarily decrease as income rises. People may continue to buy butter or even buy more of it as their income increases, preferring it over margarine or other substitutes.

Question 11

-According to the textbook discussion of income elasticity, which country in Exhibit D-4 would be the most industrialized?

Accepted Answer

Country A has the highest income elasticity, indicating a higher level of industrialization.

Question 12

The price elasticity of supply for the market-day supply curve of fish is

Accepted Answer

The market-day supply curve of fish is perfectly inelastic, meaning that the quantity supplied does not change in response to price changes, hence the price elasticity of supply is equal to zero.

Question 13

Because suppliers can more readily adjust their output in the long run than in the short run, we expect price elasticity of supply to be

Accepted Answer

In the long run, suppliers have more time and flexibility to adjust their production levels in response to price changes, making the price elasticity of supply higher compared to the short run where adjustments are more limited.

Question 14

The price elasticity of supply for toys is 0.36, so that a 1 percent increase in price would generate a

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. A price elasticity of supply of 0.36 means that a 1 percent increase in price leads to a 0.36 percent increase in quantity supplied.

Question 15

To raise the most tax revenue, governments should consider taxing goods whose

Accepted Answer

Goods with low price elasticity of demand are less sensitive to price changes, meaning consumers will continue to buy them even as taxes raise their prices, leading to higher tax revenue.

Question 16

The price elasticity of demand for gasoline is 0.27 and for wine is 2.9. If the government had the choice of taxing only one, which of the following should it choose?

Accepted Answer

The government should tax gasoline because its price elasticity of demand is inelastic (0.27), meaning consumers are less sensitive to price changes and demand will not decrease significantly, ensuring steady tax revenue. Wine, with an elasticity of 2.9, is highly elastic, indicating consumers are more responsive to price changes, and a tax could significantly reduce demand and tax revenue.

Question 17

Price elasticities of supply are always

Accepted Answer

Price elasticities of supply are always positive because as the price of a good increases, the quantity supplied generally increases, indicating a direct relationship between price and quantity supplied.

Question 18

The price elasticity of demand for a good is influenced by which of the following factors?

Accepted Answer

The price elasticity of demand is influenced by the availability of substitutes because if there are more substitutes available, consumers can easily switch to another product if the price of the good increases, making the demand more elastic.

Question 19

Elasticity is a useful tool in learning more about the character of demand. It depicts

Accepted Answer

Elasticity measures the responsiveness of one variable to changes in another, specifically the ratio of percentage change in quantity demanded to percentage change in price.

Question 20

Consider the linear downward-sloping demand curve and the concept of elasticity. Which of the following statements is true?

Accepted Answer

The answer of Consider the linear downward-sloping demand curve and...

Quiz 4: Elasticity