Question 1

Linesha,a college student working part-time receives a wage increase.An avid movie buff,she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.Based on this information,
A) DVDs and Blu-ray discs are substitutes.
B) Blu-ray discs are normal goods and DVDs are inferior goods.
C) DVDs and Blu-ray discs are normal goods.
D) the cross-price elasticity between DVDs and Blu-ray discs is negative.

Accepted Answer

The answer of Linesha,a college student working part-time receives a...

Question 2

Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is
A) negative, so Sefton considers potatoes to be an inferior good.
B) positive, so Sefton considers potatoes to be an inferior good.
C) positive, so Sefton considers potatoes to be a normal good and a necessity.
D) negative, so Sefton considers potatoes to be a normal good.

Accepted Answer

The answer of Last year,Sefton purchased 60 pounds of potatoes...

Question 3

Economists estimated that the price elasticity of beer is -0.23 and the income elasticity of beer is -0.09.This means that
A) an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good.
B) an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.
C) a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.
D) an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity.

Accepted Answer

The price elasticity of -0.23 indicates that beer is inelastic, so an increase in price will increase revenue. The income elasticity of -0.09 indicates beer is an inferior good.

Question 4

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.What does this mean?
A) A 1 percent decrease in the price of grapefruit juice leads to a 6 percent increase in orange juice consumption.
B) A 6 percent increase in the price of grapefruit juice leads to a 1 percent increase in orange juice consumption.
C) If the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased.
D) The demand for orange juice is 6 times more than the demand for grapefruit juice.

Accepted Answer

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

Question 5

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 cross-price elasticity of zero?
A) a and b only
B) c only since most people cannot do without computers
C) e only
D) none of the pairs listed

Accepted Answer

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

Question 6

According to a study of the U.S.demand for alcoholic beverages,the price elasticity of demand for beer is -0.23.Which of the following could explain why the price elasticity of demand for beer is low?
A) Beer is an inferior alcoholic beverage.
B) More and more people are switching to wine and cocktails rather than beer.
C) The price of beer is relatively low and for many people it is a habit forming product.
D) There are only a few major suppliers of beer.

Accepted Answer

The low price elasticity of demand for beer can be explained by the fact that its price is relatively low and it is a habit forming product for many people. This means that even if the price of beer increases, consumers will still continue to purchase it due to their loyalty to the product and the fact that it is relatively inexpensive compared to other alcoholic beverages.

Question 7

Suppose that at a price of $55,100 units were sold while at a price of $33,153 units were sold.Without calculating the price elasticity value,can you determine whether demand is elastic,unit-elastic,or inelastic? Explain your answer.

Accepted Answer

The answer of Suppose that at a price of $55,100...

Question 8

Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE)sites--Brown County,Wisconsin,and St.Joseph County,Indiana,John Mulford of Rand Research estimates that the long-run "permanent" income elasticity of housing expenditures to be 0.45 for owners.Using this information,what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites?
A) Housing expenditures will increase significantly.
B) Housing expenditures in HASE sites significantly will fall as recipients moved out of these areas to higher-income areas.
C) Housing expenditures will increase, but not significantly.
D) Housing expenditures will decrease by a small amount.

Accepted Answer

The estimated long-run "permanent" income elasticity of housing expenditures for owners is 0.45, indicating that a 1% increase in income will lead to a 0.45% increase in housing expenditures in the long run. Therefore, if the government increases income transfers to recipients in HASE sites, their incomes will increase, and consequently, housing expenditures will also increase. However, the increase may not be significant as the elasticity is less than 1. Additionally, there is no indication that recipients will move out of HASE sites, so option B is not a likely outcome. Option D is also not likely as the elasticity suggests that even a small increase in income can lead to a moderate increase in housing expenditures.

Question 9

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future,the type of firm that would be able to increase its sales if your expectations are met is
A) one that sells an inferior good.
B) one that sells a necessity good.
C) one that sells a luxury good.
D) one that sells a price inelastic good.

Accepted Answer

A luxury good is something that people will buy more of as their income rises. If the economy booms and average income increases, people will likely have more disposable income to spend on luxury goods, so a firm that sells luxury goods would likely see an increase in sales.

Question 10

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 negative 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.shampoo...

Question 11

Income elasticity measures
A) how a good's quantity demanded responds to change in the goods price.
B) how a good's quantity demanded responds to change in the price of another good.
C) how a good's quantity demanded responds to change in buyers' incomes.
D) how a good's quantity demanded responds to producers' incomes.

Accepted Answer

Income elasticity measures how a good's quantity demanded responds to change in buyers' incomes.

Question 12

Explain the relationship between price elasticity of demand and total revenue.

Accepted Answer

The answer of Explain the relationship between price elasticity of...

Question 13

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.
A) -0.66
B) 0.5
C) 1.5
D) 2

Accepted Answer

Income elasticity of demand = (percentage change in quantity demanded) ÷ (percentage change in income)
Therefore, income elasticity of demand = 4% ÷ 8% = 0.5.

Question 14

Which of the following items is likely to have the highest income elasticity of demand?
A) a bus ride
B) a meal at Taco Bell
C) a vacation home in the Swiss Alps
D) a tank of gasoline

Accepted Answer

A vacation home in the Swiss Alps is likely to have the highest income elasticity of demand because it is a luxury good that people only buy if they have high incomes. As a result, if people's incomes increase, they are likely to spend a larger proportion of their income on buying vacation homes in the Swiss Alps. This means that the demand for these homes is highly sensitive to changes in income, making its income elasticity of demand high.

Question 15

Firms estimate the price elasticity of demand for new products by conducting market experiments in which firms try different prices and observe the resulting change in quantity demanded.

Accepted Answer

This statement is true. Firms use market experiments to estimate the price elasticity of demand for new products by trying different prices and observing the resulting change in quantity demanded. This helps them determine the optimal price that maximizes revenue and profitability.

Question 16

Cross-price elasticity of demand is calculated as the
A) percentage change in quantity demanded divided by percentage change in price of a good.
B) percentage change in quantity demanded of one good divided by percentage change in price of a different good.
C) percentage change in quantity sold divided by percentage change in buyers' incomes.
D) percentage change in quantity supplied divided by percentage change in price of a good.

Accepted Answer

Cross-price elasticity of demand measures the responsiveness of demand for one good to a change in the price of a different good. It is calculated as the percentage change in quantity demanded of one good divided by percentage change in price of a different good. Therefore, the correct answer is B.

Question 17

Studies show that the income elasticity of demand for wine is approximately five.What does this mean?
A) A one percent decrease in the price of wine leads to a five percent increase in wine consumption.
B) A one percent increase in income leads to a five percent increase in wine consumption.
C) A five percent increase in income leads to a one percent increase in wine consumption.
D) Wine is a relatively elastic good.

Accepted Answer

Income elasticity of demand measures the responsiveness of demand to changes in income. A positive income elasticity of demand for wine (which is true according to the statement) means that wine is a normal good. An income elasticity of demand of 5 means that a 1% increase in income leads to a 5% increase in wine consumption, and a 1% decrease in income leads to a 5% decrease in wine consumption.

Question 18

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result,CineArts Videos experienced a 16 percent decline in its movie club membership.What is the value of the cross-price elasticity between the two movie club memberships?
A) -1.6
B) -0.625
C) 0.625
D) 1.6

Accepted Answer

The answer of Suppose Tinsel Town Videos lowers the price...

Question 19

The Mass Rapid Transit (MRT)System in Hong Kong has been running significant losses.Transport Ministry officials have argued over whether to raise fares to combat the losses.One argument against a fare increase is that it will aggravate traffic congestion on the streets during peak commuter hours.Suppose that the current fare is $4 and the government is considering raising it to $6.Officials estimate that this reduces the number of rides purchased from 10,000 to 8,000 per day.
a.What is the estimated elasticity of demand for MRT rides?
b.What does this elasticity of demand suggest to you about what will happen to total revenue earned by the transit system?
c.Last year,the MRT system incurred a loss of $50,000 per day.Do you think the fare increase will resolve the deficit problem as well as Ministry officials anticipate? Explain.

Accepted Answer

The answer of The Mass Rapid Transit (MRT)System in Hong...

Question 20

If the cross-price elasticity of demand for computers and software is negative,this means the two goods are
A) substitutes.
B) complements.
C) inferior.
D) normal.

Accepted Answer

A negative cross-price elasticity of demand implies that the two goods are complements. This means that a change in the price of one good will result in an opposite change in the demand for the other good. In this case, a decrease in the price of software will increase the demand for computers, and vice versa.

Quiz 6: Elasticity: The Responsiveness of Demand and Supply

Linesha,a college student working part-time receives a wage increase.An avid movie buff,she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.Based on this information,

Last year,Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000.This year,his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes.All else constant,Sefton's income elasticity of demand for potatoes is

Economists estimated that the price elasticity of beer is -0.23 and the income elasticity of beer is -0.09.This means that

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.What does this mean?

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 cross-price elasticity of zero?

According to a study of the U.S.demand for alcoholic beverages,the price elasticity of demand for beer is -0.23.Which of the following could explain why the price elasticity of demand for beer is low?

Suppose that at a price of $55,100 units were sold while at a price of $33,153 units were sold.Without calculating the price elasticity value,can you determine whether demand is elastic,unit-elastic,or inelastic? Explain your answer.

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future,the type of firm that would be able to increase its sales if your expectations are met is

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 negative cross-price elasticity?

Income elasticity measures

Explain the relationship between price elasticity of demand and total revenue.

Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

Which of the following items is likely to have the highest income elasticity of demand?

Firms estimate the price elasticity of demand for new products by conducting market experiments in which firms try different prices and observe the resulting change in quantity demanded.

Cross-price elasticity of demand is calculated as the

Studies show that the income elasticity of demand for wine is approximately five.What does this mean?

Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a result,CineArts Videos experienced a 16 percent decline in its movie club membership.What is the value of the cross-price elasticity between the two movie club memberships?

If the cross-price elasticity of demand for computers and software is negative,this means the two goods are