Question 1

In surveying their alumni, State U's economics department discovered that ramen noodle consumption declined once students graduated and found jobs. One conclusion the survey team might draw from this result is that:

Accepted Answer

For inferior goods, an increase in income leads to a decrease in consumption.

Question 2

If the cross-price elasticity of demand between two goods is -1.2, then the two goods are:

Accepted Answer

The cross-price elasticity of demand between complements is negative: an increase in the price of one will lead to a decrease in demand for the other.

Question 3

The price elasticity of supply at a point is the:

Accepted Answer

The price elasticity of supply at a point is the percentage change in quantity supplied divided by the percentage change in price.

Question 4

Refer to the accompanying figure. What is the slope of the supply curve?

Accepted Answer

Slope is computed as rise/run.

Question 5

If a one percent increase in the price of oranges leads to a five percent increase in the quantity supplied, the price elasticity of supply for oranges is ________.

Accepted Answer

The price elasticity of supply at a point is the percentage change in quantity supplied divided by the percentage change in price.

Question 6

Suppose you believe that plaid flannel shirts are an inferior good, and want to test this with economic data. You expect to find that the income elasticity for plaid flannel shirts is:

Accepted Answer

The income elasticity of demand for a good is the percentage by which quantity demanded changes in response to a one percent change in income. For inferior goods, an increase in income leads to a decrease in consumption (and a decrease in income leads to an increase in consumption), implying that the income elasticity of demand is negative for inferior goods.

Question 7

Suppose that if the price of plane tickets increased, more people would choose to travel by train. If this happened, you would know that:

Accepted Answer

The cross-price elasticity of demand between substitutes is positive: an increase in the price of one will lead to an increase in demand for the other.

Question 8

You have found data that indicates that the income elasticity of demand for generic (unbranded)shampoo is -0.7. You should conclude that generic shampoo:

Accepted Answer

The income elasticity of demand for a good is the percentage by which quantity demanded changes in response to a one percent change in income. For inferior goods, an increase in income leads to a decrease in consumption (and a decrease in income leads to an increase in consumption), implying that the income elasticity of demand is negative.

Question 9

Suppose an increase in the price of hamburger from $3 to $4 leads to an increase in quantity supplied from 100 units to 150 units. At the original price, the price elasticity of supply for hamburgers is ________ so supply is ________.

Accepted Answer

The price elasticity of supply is the percentage change in quantity supplied
(ΔQ/Q)divided by the percentage change in price (ΔP/P). This can be expressed as (ΔQ/Q)/(ΔP/P)or (ΔQ/ΔP)× (P/Q). Using the last formula, we have (50/1)× (3/100), which yields 3/2 (or, 1.5), indicating that supply is elastic with respect to price.

Question 10

If the income elasticity for a particular good is negative, then:

Accepted Answer

The income elasticity of demand will be negative if an increase in income leads to a decrease in demand (or a decrease in income leads to an increase in demand).

Question 11

If your income elasticity of demand for hot dogs is negative, then:

Accepted Answer

The income elasticity of demand for a good is the percentage by which quantity demanded changes in response to a one percent change in income. For inferior goods, an increase in income leads to a decrease in consumption (and a decrease in income leads to an increase in consumption), implying that the income elasticity of demand is negative for inferior goods.

Question 12

If the cross-price elasticity of demand between blueberries and yogurt is negative, then the two goods are:

Accepted Answer

The cross-price elasticity of demand between complements is negative: an increase in the price of one will lead to a decrease in demand for the other.

Question 13

The cross-price elasticity of demand between bread and potatoes is estimated to be 0.5. This implies bread and potatoes are:

Accepted Answer

The cross-price elasticity of demand between substitutes is positive: an increase in the price of one will lead to an increase in the demand for the other.

Question 14

A change in consumers' incomes causes a change in:

Accepted Answer

Changes in income shift demand curves.

Question 15

If the cross-price elasticity of demand between lettuce and salad dressing is negative, then when the price of lettuce rises, the demand for salad dressing will ________.

Accepted Answer

If the cross-price elasticity of demand between two goods is negative, then the two goods are complements, implying that an increase in the price of one will lead to a decrease in demand for the other.

Question 16

The percentage change in quantity supplied that results from a 1 percent change in price is known as the:

Accepted Answer

Price elasticity of supply is the percentage change in quantity supplied that occurs in response to a 1 percent change in price.

Question 17

If the demand for salad dressing increases when the price of lettuce decreases, the cross-price elasticity of demand between salad dressing and lettuce will be ________ because these two goods are ________.

Accepted Answer

If two goods are complements, then an increase in the price of one good will lead the quantity demanded of the other good to fall, implying that the cross-price elasticity of demand between the two goods will be negative.

Question 18

During recessions, when some workers lose their jobs and have lower incomes, sales of durable goods (goods with a life expectancy of 3 years or more)decline. Apparently, durable goods are:

Accepted Answer

The income elasticity of demand for a good is the percentage by which quantity demanded changes in response to a one percent change in income. For normal goods, an increase in income leads to an increase in consumption (and a decrease in income leads to a decrease in consumption), implying that the income elasticity of demand is positive for normal goods.

Question 19

Suppose an increase in the price of golf clubs from $75 to $125 leads to an increase in quantity supplied from 200 units to 300 units. The price elasticity of supply for golf clubs at the original price of $75 is ________, so supply is ________.

Accepted Answer

The price elasticity of supply is the percentage change in quantity supplied
(ΔQ/Q)divided by the percentage change in price (ΔP/P). This can be expressed as (ΔQ/Q)/(ΔP/P)or (ΔQ/ΔP)× (P/Q). Using the last formula, we have (100/50)× (75/200), which yields 3/4 (or, 0.75), indicating that supply is inelastic with respect to price.

Question 20

If most consumer goods and services are ________, then most income elasticities are ________.

Accepted Answer

The income elasticity of demand for a good is the percentage by which quantity demanded changes in response to a one percent change in income. For normal goods, an increase in income leads to an increase in consumption (and a decrease in income leads to a decrease in consumption), implying that the income elasticity of demand is positive for normal goods.

Quiz 4: Elasticity