Question 1

Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.​

Accepted Answer

The income elasticity of demand can be negative for inferior goods, zero for necessities, and positive for normal goods. The cross-price elasticity of demand can be negative for complements, zero for unrelated goods, and positive for substitutes.

Question 2

The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.​

Accepted Answer

When close substitutes are available, consumers have more options and may switch to the substitute if the price of the original product increases. This makes the demand more sensitive to changes in price, resulting in a higher price elasticity of demand.

Question 3

Total revenue is maximized where demand is inelastic.​

Accepted Answer

False

Question 4

If demand is elastic, a decrease in price leads to a decrease in total revenue.​

Accepted Answer

If demand is elastic, a decrease in price leads to an increase in total revenue. This is because the increase in quantity demanded outweighs the decrease in price.

Question 5

Total revenue is the same for every price-quantity combination along a unit-elastic demand curve.​

Accepted Answer

Along a unit-elastic demand curve, the percentage change in quantity demanded is equal to the percentage change in price, resulting in a constant value for total revenue. Therefore, total revenue is the same for every price-quantity combination along the curve.

Question 6

Necessities and luxuries are both types of normal goods.​

Accepted Answer

Necessities are goods that are essential for survival, while luxuries are goods that are not essential but provide satisfaction and enjoyment. Both necessities and luxuries are types of normal goods, meaning that as income increases, demand for these goods also increases.

Question 7

Any supply curve that is a straight line passing through the graph's origin is unit elastic.​

Accepted Answer

A supply curve that is a straight line passing through the graph's origin has a constant slope or elasticity. Since the slope is equal to 1, it means that for every percentage change in price, the quantity supplied changes by the same percentage. This is called unit elasticity. Therefore, any supply curve that is a straight line passing through the origin is unit elastic.

Question 8

As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.​

Accepted Answer

The answer of As consumers have a longer time period...

Question 9

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.​

Accepted Answer

The answer of If demand is inelastic, the percentage change...

Question 10

If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.​

Accepted Answer

If the demand curve shifts but the price remains the same, it indicates that the supply curve is perfectly elastic, not inelastic. Perfectly elastic supply means suppliers are willing to supply any quantity at a given price.

Question 11

Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.​

Accepted Answer

At the midpoint of a linear downward-sloping demand curve, the percentage change in quantity demanded is equal to the percentage change in price, resulting in a price elasticity of 1.

Question 12

As price decreases along a linear demand curve, the price elasticity of demand decreases.​

Accepted Answer

Along a linear demand curve, the slope remains constant. As price decreases and we move down along the demand curve, the percentage change in quantity demanded becomes smaller and smaller, resulting in a less elastic demand.

Question 13

If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.​

Accepted Answer

If the demand for a product remains unchanged when income rises, this indicates that the product is likely a necessity. Necessities tend to have a low income elasticity of demand, meaning that the percentage change in quantity demanded is less than the percentage change in income. Therefore, the income elasticity of demand would be less than 1 (inelastic), rather than unit elastic.

Question 14

When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes.​

Accepted Answer

A positive cross-price elasticity of demand indicates that as the price of one product increases, the demand for the other product also increases. This suggests that the two products are substitutes, as consumers are willing to switch between the two products depending on their relative prices.

Question 15

A normal good is defined as a product for which quantity demanded increases as price decreases.​

Accepted Answer

The answer of A normal good is defined as a...

Question 16

Elasticity rises as price falls along a linear downward-sloping demand curve.​

Accepted Answer

The answer of Elasticity rises as price falls along a...

Question 17

The availability of substitutes makes the demand for a good less elastic.​

Accepted Answer

Availability of substitutes makes the demand for a good more elastic. When a good has many substitutes, consumers can easily switch to other products if the price of that good increases, making the demand more flexible.

Question 18

The demand for firewood is likely to be more elastic in the summer than in the winter.​

Accepted Answer

In the summer months, consumers have other alternatives like air conditioning that they can use instead of firewood. In contrast, in the winter months, firewood is an essential source of heating for many households, making the demand for it less elastic.

Question 19

The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will demand a substitute.​

Accepted Answer

This statement reflects the law of demand, which states that as the price of a good increases, the quantity demanded decreases. If a product's price is a large proportion of a consumer's budget, a small increase in price will have a significant impact on the consumer's purchasing power, leading them to seek alternative products at a lower price.

Question 20

The ability of increasing quantity supplied in response to a higher price is identical across industries.​

Accepted Answer

The ability of increasing quantity supplied in response to a higher price can vary across industries. Some industries may have a more elastic supply curve where the quantity supplied can increase significantly in response to a higher price, while others may have a more inelastic supply curve where the quantity supplied cannot increase as much in response to a higher price.

Quiz 5: Elasticity of Demand and Supply

Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.​

The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.​

Total revenue is maximized where demand is inelastic.​

If demand is elastic, a decrease in price leads to a decrease in total revenue.​

Total revenue is the same for every price-quantity combination along a unit-elastic demand curve.​

Necessities and luxuries are both types of normal goods.​

Any supply curve that is a straight line passing through the graph's origin is unit elastic.​

As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.​

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.​

If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.​

Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.​

As price decreases along a linear demand curve, the price elasticity of demand decreases.​

If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.​

When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes.​

A normal good is defined as a product for which quantity demanded increases as price decreases.​

Elasticity rises as price falls along a linear downward-sloping demand curve.​

The availability of substitutes makes the demand for a good less elastic.​

The demand for firewood is likely to be more elastic in the summer than in the winter.​

The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will demand a substitute.​

The ability of increasing quantity supplied in response to a higher price is identical across industries.​

Both the income elasticity of demand and the cross-price elasticity of demand coefficients can take on negative, zero, or positive values.

The greater the availability of close substitutes for a product, the greater the price elasticity of demand for that product.

Total revenue is maximized where demand is inelastic.

If demand is elastic, a decrease in price leads to a decrease in total revenue.

Total revenue is the same for every price-quantity combination along a unit-elastic demand curve.

Necessities and luxuries are both types of normal goods.

Any supply curve that is a straight line passing through the graph's origin is unit elastic.

As consumers have a longer time period to respond, the demand for a product typically becomes more inelastic.

If demand is inelastic, the percentage change in price is greater than the resulting percentage change in quantity demanded.

If the demand curve shifts, but the supply curve does not, and the price remains the same, supply must be perfectly inelastic.

Price elasticity is 1 at the midpoint of a linear downward-sloping demand curve.

As price decreases along a linear demand curve, the price elasticity of demand decreases.

If income rises and the demand for a product remains unchanged, the income elasticity of demand for that product is unit elastic.

When the cross-price elasticity of demand between two products is positive, the two goods are said to be substitutes.

A normal good is defined as a product for which quantity demanded increases as price decreases.

Elasticity rises as price falls along a linear downward-sloping demand curve.

The availability of substitutes makes the demand for a good less elastic.

The demand for firewood is likely to be more elastic in the summer than in the winter.

The larger the proportion of a consumer's budget that is spent on a product, the more the consumer will demand a substitute.

The ability of increasing quantity supplied in response to a higher price is identical across industries.