Question 1

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 and have few substitutes, hence demand for them is both income and price inelastic. This means that changes in their prices or consumers' income have little effect on the quantity demanded.

Question 2

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 domestically...

Question 3

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Accepted Answer

The answer of The demand for most farm products is...

Question 4

Suppose a 4 per cent increase in income results in a 2 per cent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.

Accepted Answer

The answer of Suppose a 4 per cent increase in...

Question 5

Assume that the price elasticity of demand for petrol is -0.06.If the government tax causes the price of petrol to increase by 50 per cent,what will be the decrease in the quantity of petrol demanded?
A)0.5 per cent
B)3.0 per cent
C)8.33 per cent
D)50 per cent

Accepted Answer

The decrease in the quantity of petrol demanded can be calculated using the price elasticity of demand formula: Percentage Change in Quantity Demanded = Price Elasticity of Demand * Percentage Change in Price. Here, it's -0.06 * 50% = -3%. This means the quantity demanded will decrease by 3%.

Question 6

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 views port and chocolate cake as complementary goods, meaning that they enhance each other's enjoyment when consumed together.

Question 7

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

Accepted Answer

If the income elasticity for canned food was negative (less than 0), then canned food would be an inferior good. However, an income elasticity of 0.8 indicates that canned food is a normal good, as the demand for canned food increases with increases in income, but at a rate slower than one-to-one.

Question 8

Most food products have low income and price elasticities of demand.

Accepted Answer

This statement is generally true. Food products are often considered necessities, meaning that changes in price or income do not significantly affect consumer demand. However, there are some exceptions, such as luxury foods or specialty products with a high price tag.

Question 9

What factors would make you more sensitive or less sensitive to price when purchasing petrol?

Accepted Answer

The answer of What factors would make you more sensitive...

Question 10

Assume that a 50 per cent petrol tax led to a large increase in its price and only a small decrease in the quantity of petrol demanded.Economic analysis would lead one to conclude that
A)petrol should be taxed because the benefits of the tax would exceed the costs.
B)petrol should not be taxed because the benefits are uncertain.
C)petrol should not be taxed on ethical grounds since ethical benefits and costs can't be measured.
D)the benefits of taxing petrol is a normative issue.Economic analysis can be used to contribute to discussion of this issue but cannot decide it.

Accepted Answer

The answer of Assume that a 50 per cent petrol...

Question 11

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

Accepted Answer

A zero cross-price elasticity of demand indicates that the two goods are not related and a change in the price of one good will have no impact on the demand for the other good.

Question 12

The demand for most farm products is relatively inelastic.All else constant,what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?
A)Farm revenues increase.
B)Farm revenues decrease.
C)Farm revenues remain constant because consumers will not increase their consumption of farm products by much.
D)Farm revenues could increase or decrease depending on the cost of this new equipment.

Accepted Answer

The answer of The demand for most farm products is...

Question 13

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 14

Explain the concepts of cross-price elasticity of demand and income elasticity of demand.What do positive and negative values indicate for each of these demand elasticities ?

Accepted Answer

The answer of Explain the concepts of cross-price elasticity of...

Question 15

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 spirits...

Question 16

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

An income elasticity of demand greater than 1 indicates that the good is a luxury good. Wine has an income elasticity of demand of 5.03, indicating that it is a luxury good. Spirits also have a positive income elasticity of demand (1.21), indicating that they are also normal goods. Therefore, both wine and spirits are luxury goods.

Question 17

Since 1950 there has been a substantial increase in wheat production.The increase in production has led to a decrease in the price of wheat because of which of the following factors?
A)The absolute value of the price elasticity of demand for wheat is less than 1,and the income elasticity of demand for wheat is greater than 1.
B)The absolute value of the price elasticity of demand for wheat is greater than 1,and wheat is a close substitute for other food products.
C)The absolute value of the price elasticity of demand for wheat is less than 1,and the income elasticity of demand for wheat is low.
D)The income elasticity of demand for wheat is high,and wheat is an inferior good.

Accepted Answer

The answer of Since 1950 there has been a substantial...

Question 18

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 rise,holding...

Question 19

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

Question 20

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...

Quiz 4: Elasticity: the Responsiveness of Demand and Supply

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

The demand for most farm products is relatively inelastic.A drought that reduces the supply of farm products will also cause farm revenues to fall.

Suppose a 4 per cent increase in income results in a 2 per cent decrease in the quantity demanded of a good.Calculate the income elasticity of demand for the good and determine what type of good it is.

Assume that the price elasticity of demand for petrol is -0.06.If the government tax causes the price of petrol to increase by 50 per cent,what will be the decrease in the quantity of petrol demanded?

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

Most food products have low income and price elasticities of demand.

What factors would make you more sensitive or less sensitive to price when purchasing petrol?

Assume that a 50 per cent petrol tax led to a large increase in its price and only a small decrease in the quantity of petrol demanded.Economic analysis would lead one to conclude that

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

The demand for most farm products is relatively inelastic.All else constant,what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?

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

Explain the concepts of cross-price elasticity of demand and income elasticity of demand.What do positive and negative values indicate for each of these demand elasticities ?

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

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

Since 1950 there has been a substantial increase in wheat production.The increase in production has led to a decrease in the price of wheat because of which of the following factors?

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

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

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