Question 1

Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what will be the percentage change in the quantity of Dell computers demanded?
A) 2.4 percent
B) -10.5 percent
C) 10.5 percent
D) -42 percent

Accepted Answer

The answer of Suppose that the cross elasticity of demand...

Question 2

If the cross elasticity of demand between goods A and B is negative
A) the demands for A and B are both price elastic.
B) the demands for A and B are both price inelastic.
C) A and B are complements.
D) A and B are substitutes.

Accepted Answer

A negative cross elasticity of demand indicates that the two goods are complements, which means that the demand for one good decreases as the price of the other good increases.

Question 3

If a rise in the price of good B increases the quantity demanded of good A
A) A and B are substitutes.
B) A and B are complements.
C) A is a substitute for B, but B is a complement to A.
D) B is a substitute for A, but A is a complement to B.

Accepted Answer

A rise in the price of a substitute good (B) would lead consumers to switch to alternative goods (A), increasing the quantity demanded of good A.

Question 4

If a fall in the price of good A increases the quantity demanded of good B
A) A and B are substitutes.
B) A and B are complements.
C) A is a substitute for B, but B is a complement to A.
D) B is a substitute for A, but A is a complement to B.

Accepted Answer

The answer of If a fall in the price of...

Question 5

If goods A and B are complements, then
A) the cross elasticity of demand between A and B is negative.
B) the cross elasticity of demand between A and B is positive.
C) their income elasticities of demand are both greater than 1.
D) their income elasticities of demand are both less than 1.

Accepted Answer

When goods A and B are complements, the cross elasticity of demand between them is negative. This means that as the price of good A increases, the quantity demanded of good B decreases, and vice versa. For example, if the price of peanut butter (good A) increases, the demand for jelly (good B) may decrease because people often eat them together. Therefore, choice A is the correct answer.

Question 6

Dell lowers the price of their PCs by 10 percent. As a result, the quantity of Gateway computers demanded at the current price decreases by 12 percent. What is the cross elasticity of demand for Gateway computers with respect to the price of Dell computers?
A) -1.20
B) -0.83
C) 1.20
D) 0.83

Accepted Answer

The answer of Dell lowers the price of their PCs...

Question 7

If the cross elasticity of demand between coffee and tea is positive, an increase in the price of tea will shift the demand curve for
A) tea rightward.
B) tea leftward.
C) coffee rightward.
D) coffee leftward.

Accepted Answer

The answer of If the cross elasticity of demand between...

Question 8

If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the goods must be ________ and the cross elasticity of demand equals ________.
A) substitutes; 0.40
B) substitutes; 2.5
C) complements; 0.40
D) complements; 2.5

Accepted Answer

The fact that a price hike in one good increases the quantity demanded of another good indicates that the goods are substitutes. The cross elasticity of demand is calculated by dividing the percent change in quantity demanded of the other good by the percent change in price of the first good, so it is 2/5 = 0.40.

Question 9

If the cross elasticity of demand between two goods is -0.56, then a fall in the price of one good leads to a ________ shift in the ________ of the other good.
A) rightward; demand
B) rightward; supply
C) leftward; demand
D) leftward; supply

Accepted Answer

The answer of If the cross elasticity of demand between...

Question 10

Suppose Clyde always eats ice cream and chocolate syrup together. If the price of syrup increases by 10 percent, and the cross elasticity of demand is -2, the demand for ice cream
A) increases by 5 percent.
B) increases by 20 percent.
C) decreases by 5 percent.
D) decreases by 20 percent.

Accepted Answer

Since the cross elasticity of demand is -2, this means that a 10% increase in price of syrup leads to a 20% decrease in demand for ice cream (2 x 10%). Therefore, the demand for ice cream decreases by 20 percent.

Question 11

If there is an increase in the price of broccoli because of disastrous weather that destroys about half of this year's spinach crop, which of the following could be TRUE?
A) The cross elasticity of demand between spinach and broccoli is negative 1.25.
B) The demand curve for broccoli has shifted rightward and the cross elasticity of demand between spinach and broccoli is positive.
C) The demand curve for spinach has shifted to the leftward and the cross elasticity of demand between spinach and broccoli is positive.
D) The demand curves for spinach and broccoli have become more cross inelastic.

Accepted Answer

The answer of If there is an increase in the...

Question 12

The cross-elasticity of demand between Homer's Holesome Doughnuts and Krusty's Krispy Crullers is 5.0, which indicates that Homer's doughnuts and Krusty's crullers are
A) complements and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is very responsive to changes in the price of crullers).
B) complements and the relationship between the two goods is weak (that is, the quantity demanded of doughnuts is not very responsive to changes in the price of crullers).
C) substitutes and the relationship between the two goods is strong (that is, the quantity demanded of doughnuts is very responsive to changes in the price of crullers).
D) substitutes and the relationship between the two goods is weak (that is, the quantity demanded of doughnuts is not very responsive to changes in the price of crullers).

Accepted Answer

A cross-elasticity of demand of 5.0 indicates that Homer's Holesome Doughnuts and Krusty's Krispy Crullers are substitutes and the relationship between the two goods is strong. This means that if the price of Krusty's Krispy Crullers increases, the quantity demanded of Homer's Holesome Doughnuts will also increase significantly. Conversely, if the price of Krusty's Krispy Crullers decreases, the quantity demanded of Homer's Holesome Doughnuts will decrease significantly.

Question 13

The greater the substitutability between Northwest timber and Southeast timber, the ________ is the cross elasticity of demand between timber from the two regions and the ________ is the elasticity of demand for Northwest timber.
A) smaller; smaller
B) smaller; larger
C) larger; smaller
D) larger; larger

Accepted Answer

The answer of The greater the substitutability between Northwest timber...

Question 14

Based on the following pieces of information, which fast food product do consumers see as the closest substitute for Wendy's Hamburgers?
A) Kentucky Fried Chicken, which has a cross elasticity of 1.70 with Wendy's
B) McDonald's hamburgers, which have a cross elasticity of 1.01 with Wendy's
C) Pizza Hut pizza, which has a cross elasticity of zero with Wendy's
D) Taco Bell tacos, which have a cross elasticity of -1.25 with Wendy's

Accepted Answer

The answer of Based on the following pieces of information,...

Question 15

If the cross elasticity of demand is -5 between french fries and orange drink, then french fries
A) and orange drink are complements.
B) and orange drink are substitutes.
C) are a normal good and orange drink is an inferior good.
D) are an inferior good and orange drink is a normal good.

Accepted Answer

A negative cross elasticity of demand means that the two products are substitutes, as an increase in the price of one will lead to an increase in the quantity demanded of the other.

Question 16

Microsoft raises the price of its Office software by 10 percent. As a result, the quantity of personal computers demanded at the current price decreases by 5 percent. What is the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software?
A) -2.0
B) -0.5
C) 0.5
D) 2.0

Accepted Answer

The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to changes in the price of another good. In this case, we are looking at the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software.

Cross elasticity of demand = (% change in quantity demanded of PCs)/(% change in price of Microsoft Office software)

We know that the price of Microsoft Office software has increased by 10%, and this has caused the quantity demanded of personal computers to decrease by 5%. So:

% change in quantity demanded of PCs = -5%
% change in price of Microsoft Office software = 10%

Plugging these values into the formula, we get:

Cross elasticity of demand = (-5%)/(10%) = -0.5

The negative sign indicates that the two goods are complementary - that is, an increase in the price of Microsoft Office has led to a decrease in the quantity demanded of personal computers.

Question 17

If the price of one good increases by 3 percent and the quantity demanded of another good increases by 2 percent, the cross elasticity is ________ and the two goods are ________.
A) 2/3, substitutes
B) 2/3, complements
C) 3/2, complements
D) 3/2, substitutes

Accepted Answer

A positive cross elasticity means that the two goods are substitutes, and the formula for cross elasticity is the percent change in quantity demanded of one good divided by the percent change in the price of another good. Therefore, the cross elasticity in this scenario is (2%)/(3%) = 2/3.

Question 18

If the cross elasticity of demand between goods A and B is positive
A) the demands for A and B are both price elastic.
B) the demands for A and B are both price inelastic.
C) A and B are complements.
D) A and B are substitutes.

Accepted Answer

If the cross elasticity of demand between goods A and B is positive, it means that when the price of good A increases, the demand for good B also increases. This is the characteristic of substitute goods, where consumers switch from one good to the other based on price difference. Therefore, the correct choice is D) A and B are substitutes.

Question 19

The cross elasticity of demand between Coca-Cola and Pepsi-Cola is ________ so that Coke and Pepsi are ________.
A) positive; complements
B) positive; substitutes
C) negative; normal goods
D) negative; substitutes

Accepted Answer

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

Question 20

Suppose inter-city bus travel is a substitute for transportation by train. Which of the following could then be TRUE?
A) The cross elasticity between bus and train travel could equal 0.65.
B) The cross elasticity between bus and train travel could equal 1.0.
C) The cross elasticity between bus and train travel could equal 1.25.
D) All of the above could be true.

Accepted Answer

The answer of Suppose inter-city bus travel is a substitute...

Quiz 4: Elasticity

Suppose that the cross elasticity of demand for Dell computers with respect to Hewlett Packard computers is 2.1. If Hewlett-Packard lowers its price by 5 percent, other things being equal, what will be the percentage change in the quantity of Dell computers demanded?

If the cross elasticity of demand between goods A and B is negative

If a rise in the price of good B increases the quantity demanded of good A

If a fall in the price of good A increases the quantity demanded of good B

If goods A and B are complements, then

Dell lowers the price of their PCs by 10 percent. As a result, the quantity of Gateway computers demanded at the current price decreases by 12 percent. What is the cross elasticity of demand for Gateway computers with respect to the price of Dell computers?

If the cross elasticity of demand between coffee and tea is positive, an increase in the price of tea will shift the demand curve for

If a price hike of 5 percent increases the quantity demanded of another good by 2 percent, the goods must be and the cross elasticity of demand equals .

If the cross elasticity of demand between two goods is -0.56, then a fall in the price of one good leads to a shift in the of the other good.

Suppose Clyde always eats ice cream and chocolate syrup together. If the price of syrup increases by 10 percent, and the cross elasticity of demand is -2, the demand for ice cream

If there is an increase in the price of broccoli because of disastrous weather that destroys about half of this year's spinach crop, which of the following could be TRUE?

The cross-elasticity of demand between Homer's Holesome Doughnuts and Krusty's Krispy Crullers is 5.0, which indicates that Homer's doughnuts and Krusty's crullers are

The greater the substitutability between Northwest timber and Southeast timber, the is the cross elasticity of demand between timber from the two regions and the is the elasticity of demand for Northwest timber.

Based on the following pieces of information, which fast food product do consumers see as the closest substitute for Wendy's Hamburgers?

If the cross elasticity of demand is -5 between french fries and orange drink, then french fries

Microsoft raises the price of its Office software by 10 percent. As a result, the quantity of personal computers demanded at the current price decreases by 5 percent. What is the cross elasticity of demand for personal computers with respect to the price of Microsoft Office software?

If the price of one good increases by 3 percent and the quantity demanded of another good increases by 2 percent, the cross elasticity is and the two goods are .

If the cross elasticity of demand between goods A and B is positive

The cross elasticity of demand between Coca-Cola and Pepsi-Cola is so that Coke and Pepsi are .

Suppose inter-city bus travel is a substitute for transportation by train. Which of the following could then be TRUE?