Question 1

If the price doubles and the quantity supplied also doubles, the price elasticity of supply for the good is
A) 2.
B) 1.
C) -2.
D) -1.
E) 100 per cent.

Accepted Answer

Price elasticity of supply measures the responsiveness of quantity supplied to a change in price. In this case, we can use the formula for price elasticity of supply:

% change in quantity supplied / % change in price

We know that when the price doubles, the quantity supplied also doubles, so we can calculate the % change in quantity supplied and % change in price:

% change in quantity supplied = (2Q - Q) / Q = 100%

% change in price = (2P - P) / P = 100%

Plugging these values into the formula, we get:

Price elasticity of supply = 100% / 100% = 1

Since the elasticity value is equal to 1, we can conclude that supply is unit elastic.

Question 2

If the quantity supplied and the price change by the same percentage, then supply is
A) elastic.
B) perfectly inelastic.
C) unit elastic.
D) perfectly elastic.
E) inelastic.

Accepted Answer

If the quantity supplied and the price change by the same percentage, it means that the elasticity of supply is equal to 1. This is known as unit elasticity. This occurs when the percentage change in quantity supplied is the same as the percentage change in price.

Question 3

If the price of a cinema ticket rises 3 per cent and, as a result, the quantity demanded of DVD rentals increases 6 per cent, then the cross elasticity of demand is
A) 2.
B) 9.
C) 1/2.
D) -2.
E) -1/2.

Accepted Answer

The cross elasticity of demand is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of another good. Here, it is (6% / 3%) = 2. This indicates that the two goods are substitutes, as the demand for one increases when the price of the other increases.

Question 4

If a 1 per cent increase in the price of X increases the quantity demanded of Y by 2 per cent, then X and Y are
A) normal goods and the income elasticity of demand of each equals 2.
B) substitutes and the cross elasticity of demand equals 2.
C) substitutes and the cross elasticity of demand equals 1/2.
D) complements and the cross elasticity of demand equals 2.
E) complements and the income elasticity of demand equals 2.

Accepted Answer

If a 1% increase in the price of X increases the quantity demanded of Y by 2%, then X and Y are substitutes. This is because as the price of X increases, consumers will switch to Y as a substitute. The increase in the quantity demanded of Y confirms this substitution effect. The cross elasticity of demand in this case is equal to 2, which reflects a strong relationship between the two goods. Therefore, option B is the correct choice.

Question 5

If the cross elasticity of demand between Coke and Pepsi is 2.02, then Coke and Pepsi are
A) inferior goods.
B) complements.
C) normal goods.
D) substitutes.
E) Both answers B and C are correct.

Accepted Answer

A cross elasticity of demand greater than 1 indicates that the goods are substitutes, meaning that an increase in the price of one good will cause an increase in demand for the other good. Therefore, the correct choice is D, substitutes.

Question 6

-Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake.
A) The cross elasticity is -0.83.
B) The cross elasticity is -1.75.
C) The cross elasticity is -0.75.
D) The cross elasticity is -1.33.
E) The cross elasticity is -4.0.

Accepted Answer

The midpoint method calculates the cross elasticity of demand by taking the percentage change in quantity demanded of one good divided by the percentage change in price of another good. The correct calculation results in -0.75.

Question 7

If a firm supplies 200 units at a price of $50 and 100 units at a price of $40, using the midpoint method, what is the price elasticity of supply?
A) 5.00
B) 8.50
C) 0.33
D) 1.00
E) 3.00

Accepted Answer

The price elasticity of supply using the midpoint method is calculated as [(200-100)/((200+100)/2)] / [(50-40)/((50+40)/2)] = 3.00.

Question 8

If a 20 per cent increase in the price of a good does not change the quantity supplied, the
A) supply is unit elastic.
B) supply is perfectly inelastic.
C) supply is perfectly elastic.
D) supply is elastic.
E) None of the above answers is correct.

Accepted Answer

If a 20 percent increase in price does not change the quantity supplied, it means that the supply is completely unresponsive to changes in price. This is only possible if the supply is perfectly inelastic, meaning that the quantity supplied remains constant regardless of price changes.

Question 9

Goods that can be produced at a constant or very gently rising opportunity cost have
A) an elastic supply.
B) an elastic demand.
C) an inelastic demand.
D) an inelastic supply.
E) a unit elastic demand.

Accepted Answer

Goods that can be produced at a constant or very gently rising opportunity cost indicate that producers can increase supply without a significant increase in cost, which is characteristic of an elastic supply.

Question 10

If the price of DVDs falls from $20 to $12 and the quantity of DVDs supplied decreases from 118,000 to 100,000, using the midpoint formula the elasticity of supply equals
A) 0.33.
B) 2.94.
C) -3.08.
D) 3.08.
E) 0.23.

Accepted Answer

The elasticity of supply is calculated using the midpoint formula: [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(P2 - P1) / ((P2 + P1) / 2)]. Plugging in the values: [(100,000 - 118,000) / (109,000)] / [($12 - $20) / ($16)] = (-18,000 / 109,000) / (-8 / 16) = 0.33.

Question 11

If the price of a good increases by 10 per cent and the quantity supplied increases by 5 per cent, then the elasticity of supply is
A) negative and supply is inelastic.
B) less than one and supply is inelastic.
C) greater than one and supply is elastic.
D) less than one and supply is elastic.
E) greater than one and supply is inelastic.

Accepted Answer

The elasticity of supply is calculated as the percentage change in the quantity supplied divided by the percentage change in the price. In this case, we have:
Elasticity of supply = (5% / 10%) = 0.5
Since the elasticity is less than one, we know that the supply is inelastic. So, the correct answer is B.

Question 12

-Based on the data in the table above, ice cream and cake are ________ goods.
A) inferior
B) substitute
C) complementary
D) normal
E) Both answers B and D are correct.

Accepted Answer

Ice cream and cake are complementary goods because they are often consumed together, meaning the demand for one increases the demand for the other.

Question 13

The cross elasticity of demand for butter and margarine is likely to be
A) negative because they are complements.
B) positive because they are normal goods.
C) negative because they are substitutes.
D) positive because they are substitutes.
E) positive because they are complements.

Accepted Answer

The cross elasticity of demand between substitutes is positive because as the price of one good increases, the demand for the substitute good increases as well. Butter and margarine are substitutes, so if the price of butter increases, people are likely to buy more margarine, indicating a positive cross elasticity of demand.

Question 14

Supply is unit elastic when the
A) percentage change in the quantity supplied equals the percentage change in price.
B) supply curve is upward sloping.
C) supply curve is horizontal.
D) supply curve is vertical.
E) price elasticity of supply is positive.

Accepted Answer

Unit elasticity occurs when the percentage change in the quantity supplied is equal to the percentage change in price. This means that as the price of the good increases, the quantity supplied by producers increases by the same percentage, resulting in a constant elasticity of supply of 1.

Question 15

When the percentage change in the quantity supplied is twice the percentage change in price, then supply is
A) perfectly elastic.
B) unit elastic.
C) elastic.
D) perfectly inelastic.
E) inelastic.

Accepted Answer

When the percentage change in quantity supplied is greater than the percentage change in price, the supply is elastic. In this case, the percentage change in quantity supplied is twice the percentage change in price, which means the supply is relatively responsive to changes in price, indicating elastic supply.

Question 16

If Microsoft wanted to prove to the federal court that its Windows software has many substitutes that personal computer owners can use, Microsoft hopes to find
A) a positive income elasticity for Windows.
B) that the demand for Windows is inelastic.
C) that the demand for Windows is elastic.
D) a large positive value for the cross elasticity of demand for Windows and other software.
E) a negative income elasticity for Windows.

Accepted Answer

A large positive value for the cross elasticity of demand between Windows and other software would indicate that Windows and these other software products are substitutes, meaning that if the price of Windows increases, the demand for the other software increases, and vice versa. This supports the argument that there are many substitutes available for Windows.

Question 17

Many manufactured goods have an ________ supply if production plans have only a short period to change and, as time passes and all production adjustments are made, the supply of the good ________ from the initial response.
A) inelastic; decreases
B) elastic; increases
C) inelastic; does not change
D) elastic; decreases
E) inelastic; increases

Accepted Answer

In the short term, the supply of manufactured goods is often inelastic because production cannot be quickly adjusted. Over time, as production adjustments are made, the supply can increase.

Question 18

Which of the following is correct?
A) The income elasticity of demand for a normal good is negative.
B) The cross elasticity of demand for normal goods is positive.
C) The cross elasticity of demand equals the percentage change in demand divided by the percentage change in income.
D) The cross elasticity of demand for substitute goods is positive.
E) The cross elasticity of demand for substitute goods is negative.

Accepted Answer

The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. When the price of a substitute good goes up, consumers may switch to the original good, resulting in an increase in its quantity demanded. Therefore, the cross elasticity of demand for substitute goods is positive.

Question 19

Patrick lives near two petrol stations, Caltex and Shell. If Caltex decreases the price of petrol, we predict that the quantity of petrol demanded at Shell will
A) decrease because Caltex and Shell petrol are substitutes.
B) decrease because Caltex and Shell petrol are complements.
C) increase because Caltex and Shell petrol are substitutes.
D) increase because Caltex and Shell petrol are complements.
E) not change because Caltex and Shell are different brands of petrol.

Accepted Answer

Caltex and Shell petrol are substitutes, meaning that they can be used in place of each other; if the price of Caltex petrol decreases, consumers may switch to buying petrol from Caltex instead of Shell, leading to a decrease in demand for Shell petrol.

Question 20

The cross elasticity of demand is a measure of how
A) total revenue changes when the price of a product changes.
B) demand for a product changes when the price of a substitute or complement changes.
C) responsive consumers are to changes in the price of a product.
D) responsive suppliers are to changes in the price of a product.
E) demand for a product changes when income changes.

Accepted Answer

Cross elasticity of demand measures the responsiveness of demand for a product to changes in the price of a substitute or complement product. It is calculated by dividing the percentage change in the quantity demanded of a product by the percentage change in the price of a substitute or complement product.

Quiz 5: Elasticities of Demand and Supply

If the price doubles and the quantity supplied also doubles, the price elasticity of supply for the good is

If the quantity supplied and the price change by the same percentage, then supply is

If the price of a cinema ticket rises 3 per cent and, as a result, the quantity demanded of DVD rentals increases 6 per cent, then the cross elasticity of demand is

If a 1 per cent increase in the price of X increases the quantity demanded of Y by 2 per cent, then X and Y are

If the cross elasticity of demand between Coke and Pepsi is 2.02, then Coke and Pepsi are

-Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake.

If a firm supplies 200 units at a price of $50 and 100 units at a price of $40, using the midpoint method, what is the price elasticity of supply?

If a 20 per cent increase in the price of a good does not change the quantity supplied, the

Goods that can be produced at a constant or very gently rising opportunity cost have

If the price of DVDs falls from $20 to $12 and the quantity of DVDs supplied decreases from 118,000 to 100,000, using the midpoint formula the elasticity of supply equals

If the price of a good increases by 10 per cent and the quantity supplied increases by 5 per cent, then the elasticity of supply is

-Based on the data in the table above, ice cream and cake are ________ goods.

The cross elasticity of demand for butter and margarine is likely to be

Supply is unit elastic when the

When the percentage change in the quantity supplied is twice the percentage change in price, then supply is

If Microsoft wanted to prove to the federal court that its Windows software has many substitutes that personal computer owners can use, Microsoft hopes to find

Many manufactured goods have an supply if production plans have only a short period to change and, as time passes and all production adjustments are made, the supply of the good from the initial response.

Which of the following is correct?

Patrick lives near two petrol stations, Caltex and Shell. If Caltex decreases the price of petrol, we predict that the quantity of petrol demanded at Shell will

The cross elasticity of demand is a measure of how