Question 1

The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.

Accepted Answer

The answer of The absolute value of the price elasticity...

Question 2

During an economic expansion as consumer incomes rise, holding everything else constant,
A) the demand for most goods, except luxuries, will rise.
B) the demand for luxuries will rise while the demand for inferior goods will fall.
C) the demand for luxuries and inferior goods will rise.
D) the prices of luxuries will fall while the prices of inferior goods will rise.

Accepted Answer

The answer of During an economic expansion as consumer incomes...

Question 3

A recent study indicated that "Stricter college alcohol policies such as raising the price of alcohol, or banning alcohol on campus, decreases the number of students who use marijuana." This indicates that the cross-price elasticity between alcohol and marijuana is positive.

Accepted Answer

The answer of A recent study indicated that "Stricter college...

Question 4

Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21. This indicates that
A) wine and spirits are luxury goods.
B) wine is a luxury good and spirits are inferior goods.
C) wine and spirits are highly price elastic.
D) wine is a luxury good and spirits are necessities.

Accepted Answer

The income elasticity of demand for wine being higher than that of spirits suggests that wine is a luxury good, while spirits may also be considered a luxury good, but to a lesser extent.

Question 5

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

Accepted Answer

A positive income elasticity of demand (i.e. greater than 0) indicates a normal good, while a negative income elasticity of demand (i.e. less than 0) indicates an inferior good. Since the income elasticity for canned food is 0.8 (greater than 0), it is a normal good, not an inferior good.

Question 6

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that
A) beer and spirits are complements; spirits and wine are luxuries.
B) beer and spirits are normal goods; spirits and wine are luxuries.
C) beer and spirits are complements; spirits are substitutes.
D) beer and spirits are substitutes; spirits and wine are luxuries.

Accepted Answer

The negative cross-price elasticity of demand between beer and spirits (-0.50) indicates that they are complements. The income elasticity for spirits (1.21) and wine (5.03) being greater than 1 indicates that both are considered luxury goods.

Question 7

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing
A) the percentage change in quantity demanded of Coca-Cola by the percentage change in the quantity demanded of Pepsi-Cola.
B) the percentage change in the price of Pepsi-Cola by the percentage change in quantity demanded of Coca-Cola.
C) the percentage change in the price of Coca-Cola by the percentage change in the price of Pepsi-Cola.
D) the percentage change in the quantity demanded of Coca-Cola by the percentage change in the price of Pepsi-Cola.

Accepted Answer

The answer of The cross-price elasticity of demand between Coca-Cola...

Question 8

Barbara, the consummate hostess, proudly announced as she served dessert, "A port is often the perfect end to a meal, sipped with a piece of my scrumptious chocolate cake." Evidently, Barbara views
A) port and chocolate cake as luxury items.
B) port and chocolate cake as necessities.
C) port and chocolate cake as complementary goods.
D) port and chocolate cake as substitutes to other desserts.

Accepted Answer

Barbara suggests that port and chocolate cake go well together, indicating that they are complementary goods that enhance each other's enjoyment.

Question 9

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated.

Accepted Answer

If the cross-price elasticity of demand for goods A and B is zero, it means that a change in the price of good B does not affect the demand for good A, and vice versa. Therefore, the two goods are unrelated.

Question 10

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent, and the sale of dips (like salsa and bean dip) fell 8 percent. This set of facts indicates that
A) the cross-price elasticity between tortilla chips and dips is 0.8, so the two are substitutes.
B) the cross-price elasticity between tortilla chips and dips is -0.4, so the two are complements.
C) the cross-price elasticity between tortilla chips and dips is -0.8, so the two are complements.
D) the cross-price elasticity between tortilla chips and dips is 0.4, so the two are substitutes.

Accepted Answer

The 10% increase in price of tortilla chips resulted in 4% decrease in quantity sold. This implies that the price elasticity of demand for tortilla chips is -0.4 (decrease in Qd / increase in price). Additionally, the 8% decrease in sale of dips indicates that the two goods are complements, meaning that an increase in the price of tortilla chips (a complement of dips) leads to a decrease in the demand for dips. Hence, the cross-price elasticity of demand between tortilla chips and dips is negative. Using the formula for cross-price elasticity (percentage change in quantity demanded of one good divided by percentage change in price of the other good), we can solve for the value of the cross-price elasticity, which turns out to be -0.8 (-8% / 10%). Therefore, the correct answer is C.

Question 11

Consider the following pairs of items: a. shampoo and conditioner
B. iPhones and earbuds
C. a laptop computer and a desktop computer
D. beef and pork
E. air-travel and weed killer
Which of the pairs listed will have a positive cross-price elasticity?
A) a and b only
B) c and d only
C) e only
D) a, b, and c only

Accepted Answer

The answer of Consider the following pairs of items: a....

Question 12

In order to prove that Motrin and Ibuprofen are substitutes, one should measure the ________ and get a ________.
A) cross-price elasticity; positive number
B) cross-price elasticity; negative number
C) price elasticity of demand; number greater than 1 (in absolute value)
D) price elasticity of demand; number less than 1 (in absolute value)

Accepted Answer

Cross-price elasticity measures the responsiveness of demand for one product to changes in the price of a related product. If the cross-price elasticity between Motrin and Ibuprofen is positive, it means that if the price of Motrin increases, consumers will switch to Ibuprofen, indicating that they are substitutes. A negative cross-price elasticity would suggest that Motrin and Ibuprofen are complements. Price elasticity of demand would not be sufficient to prove they are substitutes, as it only measures the responsiveness of quantity demanded to changes in price.

Question 13

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Accepted Answer

Staples such as dairy products and bread are considered necessities that people need to purchase regardless of changes in their income or the price of the product. Therefore, the demand for these products is likely to be both income and price inelastic, meaning that changes in income or price will not greatly affect the quantity demanded.

Question 14

In the alcohol industry, both wine and spirits are considered to be substitutes for beer.

Accepted Answer

The answer of In the alcohol industry, both wine and...

Question 15

In recent years, the prices of new domestically produced cars have been falling. Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel. This information suggests that the cross-price elasticity between new cars and used cars, and the cross-price elasticity between new cars and bus travel are negative.

Accepted Answer

The answer of In recent years, the prices of new...

Question 16

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that
A) beer and wine are substitutes and wine is an inferior good.
B) beer and wine are complements and wine is a luxury good.
C) beer and wine are substitutes and wine is a luxury good.
D) beer and wine are complements and wine is an inferior good.

Accepted Answer

The answer of Economists estimated that the cross-price elasticity of...

Question 17

Suppose the cross-price elasticity of demand between DVDs at Amazon.com and DVDs at Buy.com is 3.5. Based on this information, predict what happens when Amazon.com lowers its DVD prices by 10 percent.
A) The quantity of DVDs demanded on Amazon.com will increase by 35 percent.
B) The quantity of DVDs demanded on Buy.com will increase by 35 percent.
C) The quantity of DVDs demanded on Amazon.com will decrease by 35 percent.
D) The quantity of DVDs demanded on Buy.com will decrease by 35 percent.

Accepted Answer

The answer of Suppose the cross-price elasticity of demand between...

Question 18

The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 percent?
A) The quantity demanded of the related good rises by 3.4 percent.
B) The quantity demanded of the related good falls by 34 percent.
C) The quantity demanded of the related good rises by 34 percent.
D) The quantity demanded of the related good falls by 3.4 percent.

Accepted Answer

The negative cross-price elasticity suggests that Gillette razors and the related good are complementary goods. A 10% fall in the price of Gillette razors will increase the demand for Gillette razors, which in turn will increase the demand for the related good. The cross-price elasticity of -3.4 indicates that the percentage change in the quantity demanded of the related good is 3.4 times larger than the percentage change in the price of Gillette razors. Therefore, the quantity demanded of the related good will rise by 34 percent (10% x -3.4 = -34%).

Question 19

Which of the following pairs of goods is likely to have a negative cross-price elasticity of demand?
A) pancakes and syrup
B) hot dogs and hamburgers
C) orange juice and grapefruit juice
D) peanuts and cat food

Accepted Answer

The answer of Which of the following pairs of goods...

Question 20

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are
A) complements.
B) price inelastic goods.
C) substitutes.
D) necessities.

Accepted Answer

A positive cross-price elasticity of demand between two goods indicates that they are substitutes, meaning that a change in the price of one good affects the demand for the other good in the opposite direction. The value of 0.31 indicates that the two goods are somewhat weak substitutes, meaning that an increase in the price of one good will lead to a relatively small increase in the demand for the other.

Quiz 6: Elasticity: the Responsiveness of Demand and Supply

The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.

During an economic expansion as consumer incomes rise, holding everything else constant,

A recent study indicated that "Stricter college alcohol policies such as raising the price of alcohol, or banning alcohol on campus, decreases the number of students who use marijuana." This indicates that the cross-price elasticity between alcohol and marijuana is positive.

Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21. This indicates that

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that

The cross-price elasticity of demand between Coca-Cola and Pepsi-Cola is calculated by dividing

Barbara, the consummate hostess, proudly announced as she served dessert, "A port is often the perfect end to a meal, sipped with a piece of my scrumptious chocolate cake." Evidently, Barbara views

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated.

When the price of tortilla chips rose by 10 percent, the quantity of tortilla chips sold fell 4 percent, and the sale of dips (like salsa and bean dip) fell 8 percent. This set of facts indicates that

Consider the following pairs of items: a. shampoo and conditioner B. iPhones and earbuds C. a laptop computer and a desktop computer D. beef and pork E. air-travel and weed killer Which of the pairs listed will have a positive cross-price elasticity?

In order to prove that Motrin and Ibuprofen are substitutes, one should measure the and get a .

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

In the alcohol industry, both wine and spirits are considered to be substitutes for beer.

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that

Suppose the cross-price elasticity of demand between DVDs at Amazon.com and DVDs at Buy.com is 3.5. Based on this information, predict what happens when Amazon.com lowers its DVD prices by 10 percent.

The cross-price elasticity between Gillette razors and a related good is -3.4. What happens to the demand for the related good if the price of Gillette razors falls by 10 percent?

Which of the following pairs of goods is likely to have a negative cross-price elasticity of demand?

If the cross-price elasticity of demand between beer and wine is 0.31, then beer and wine are