Question 1

Which of the following statements is false?
A) If the income elasticity of demand for a good is less than 1, the demand for the good is income inelastic.
B) If the income elasticity of demand for a good is greater than 1, the demand for the good is income elastic.
C) If the income elasticity of demand for a good is equal to 1, the demand for the good is income unit elastic.
D) If the income elasticity of demand for a good is less than zero, the good is a normal good.
E) A good can be both a normal good and income inelastic.

Accepted Answer

If the income elasticity of demand for a good is less than zero, it means that as income increases, the quantity demanded of the good decreases. This is an indication that the good is an inferior good, not a normal good.

Question 2

Cross elasticity of demand is the percentage change in the quantity __________ of a good divided by the percentage change in __________.
A) demanded; the price of the good
B) supplied; the price of the good
C) demanded; the price of another good
D) supplied; the price of another good
E) demanded; income

Accepted Answer

Cross elasticity of demand measures the responsiveness of the quantity demanded for a good to the change in the price of another related good. Therefore, the correct answer is C - the percentage change in the quantity demanded of a good divided by the percentage change in the price of another good.

Question 3

If the cross elasticity of demand for good A with respect to good B is +2.7,then good A is
A) an inferior good.
B) a normal good.
C) a substitute for good B.
D) a complement to good B.

Accepted Answer

If the cross elasticity of demand is positive (as in this case) then the goods are substitutes for each other. A higher number (in this case, +2.7) means they are closer substitutes. Therefore, good A is a substitute for good B.

Question 4

Vernon spends the following percentages of his budget on the following goods: 23 percent on good A,11 percent on good B,1 percent on good C,and 3 percent on good D.For which good is price elasticity of demand the highest,ceteris paribus?
A) good A
B) good B
C) good C
D) good D

Accepted Answer

The answer of Vernon spends the following percentages of his...

Question 5

If Jack bought 18 CDs last year when his income was $20,000 and he buys 19 CDs this year when his income is $25,000,then for Jack CDs are
A) an inferior good.
B) a normal good.
C) a substitute good.
D) a complementary good.
E) There is not enough information to answer this question.

Accepted Answer

The increase in income leads to an increase in the quantity demanded of CDs, indicating that CDs are a normal good for Jack.

Question 6

A good will tend to have a low price elasticity of demand if
A) the good has few substitutes.
B) a person spends a high percentage of his or her budget on the good.
C) a person has a long period of time to adjust to price changes.
D) the good is a luxury.

Accepted Answer

A good with few substitutes means that consumers have limited options to switch to if the price of the good increases, making them less sensitive to price changes and resulting in a low price elasticity of demand.

Question 7

If the cross elasticity of demand for two goods is negative,
A) one of the goods is necessarily a normal good, and the other good is necessarily an inferior good.
B) both goods are normal goods.
C) the goods are substitutes.
D) the goods are complements.

Accepted Answer

A negative cross elasticity of demand means that an increase in the price of one good leads to a decrease in the quantity demanded of the other good. This is characteristic of complementary goods, which are goods that are consumed together, such as peanut butter and jelly or cars and gasoline.

Question 8

If Cassandra bought 12 blouses last year when her income was $55,000 and she buys 10 blouses this year when her income is $49,000,then her income elasticity of demand is
A) -1.58.
B) +1.58.
C) -0.63.
D) +0.63.
E) -2.33.

Accepted Answer

The answer of If Cassandra bought 12 blouses last year...

Question 9

If two goods are substitute goods,
A) an increase in the price of one will cause a decrease in the demand for the other.
B) an increase in the price of one will cause an increase in the demand for the other.
C) the price elasticity of demand for both goods will be greater than 1.
D) the price elasticity of demand for both goods will be less than 1.

Accepted Answer

When two goods are substitutes, an increase in the price of one good will lead to an increase in the demand for the other good, as consumers switch to the more affordable alternative.

Question 10

If Jack bought 21 CDs last year when his income was $30,000 and he buys 23 CDs this year when his income is $35,000,then his income elasticity of demand is ______________ which means that CDs are a(n)______________ good for Jack.
A) +1.69; normal
B) -1.69; inferior
C) +0.59; normal
D) +0.59; inferior
E) -0.44; inferior

Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. The percentage change in quantity is (23-21)/21 = 0.0952, and the percentage change in income is (35000-30000)/30000 = 0.1667. The elasticity is 0.0952/0.1667 = 0.57, which is approximately +0.59, indicating CDs are a normal good.

Question 11

If price rises and total revenue falls,then
A) cross elasticity of demand is negative.
B) price elasticity of demand is less than 1.
C) income elasticity of demand is positive.
D) b and c
E) none of the above

Accepted Answer

When price rises and total revenue falls, it indicates that the price elasticity of demand is greater than 1 (elastic demand), not less than 1. Therefore, none of the given options correctly describe this scenario.

Question 12

If Cassandra bought 16 cotton blouses last year when her income was $40,000 and she buys 14 cotton blouses this year her when income is $35,000,then blouses are
A) an inferior good.
B) a normal good.
C) a substitute good.
D) a complementary good.
E) There is not enough information to answer this question.

Accepted Answer

Blouses are a normal good because the quantity purchased decreased as her income decreased, indicating a direct relationship between income and quantity demanded.

Question 13

Cross elasticity of demand measures the responsiveness of changes in the quantity __________ of one good to changes in __________.
A) demanded; the price of the same good
B) demanded; income
C) demanded; the price of another good
D) supplied; the price of the same good
E) none of the above

Accepted Answer

Cross elasticity of demand measures the responsiveness of changes in the quantity demanded of one good to changes in the price of another good.

Question 14

The longer the period of time consumers have to adjust to price changes,the __________ the __________ elasticity of demand.
A) lower, price
B) lower, income
C) higher, price
D) higher, income

Accepted Answer

The longer consumers have to adjust to price changes, the more likely they are to find substitutes or alter their habits, making demand more elastic (sensitive to price changes). Therefore, the higher the price elasticity of demand.

Question 15

The shorter the period of time consumers have to adjust to price changes,the __________ the __________ elasticity of demand.
A) lower; income
B) lower; price
C) higher; income
D) higher; price

Accepted Answer

The shorter the period of time consumers have to adjust to price changes, the less sensitive they are to changes in price. This means that the elasticity of demand is lower, as consumers are less likely to change their buying habits or seek out alternative options when prices change quickly. The answer is not A or C, as income elasticity of demand refers to the relationship between changes in income and changes in demand, and is not related to the time period for adjusting to price changes. The answer is not D, as higher price elasticity of demand means that consumers are more sensitive to changes in price, which is the opposite of what happens when the adjustment period is shorter.

Question 16

If the cross elasticity of demand for good A with respect to good B is -0.87,then good A is
A) an inferior good.
B) a normal good.
C) a substitute for good B.
D) a complement to good B.

Accepted Answer

The negative cross elasticity of demand indicates that as the price of good B increases, the demand for good A decreases, which means that goods A and B are complements to each other.

Question 17

If goods A and B have a cross elasticity of demand that is positive,this is evidence that goods A and B are __________ goods.
A) complementary
B) substitute
C) normal
D) inferior

Accepted Answer

When the cross elasticity of demand between two goods is positive, it means that an increase in the price of one good leads to an increase in the demand for the other. This is characteristic of substitute goods, as consumers are choosing to buy the cheaper of the two goods. For example, if the price of coffee increases, consumers may switch to tea instead, showing a positive cross elasticity of demand between the two goods.

Question 18

If the price of good A decreases by 10 percent and the quantity demanded of good B increases by 10 percent,this is evidence that goods A and B are
A) substitute for one another.
B) complement goods to one another.
C) both inferior goods.
D) both normal goods.
E) not related.

Accepted Answer

When the price of good A decreases and the quantity demanded of good B increases, it indicates that the two goods are complements. This means that consumers buy more of good B when good A becomes cheaper, suggesting that they are used together.

Question 19

Income elasticity of demand for a normal good is always
A) less than zero.
B) greater than zero.
C) equal to zero.
D) less than one.

Accepted Answer

Income elasticity of demand for a normal good is always positive, meaning that as income increases, the quantity demanded of the good increases as well. The possible values of income elasticity of demand for a normal good range from 0 to infinity.

Question 20

If the price of good A decreases by 10 percent and the quantity demanded of good B decreases by 10 percent,this is evidence that goods A and B are
A) substitutes for one another.
B) complement goods to one another.
C) both inferior goods.
D) both normal goods.
E) not related.

Accepted Answer

When the price of good A decreases, the demand for that good will increase. However, the decrease in the price of good A also makes it relatively cheaper compared to the price of good B, thus causing a decrease in the demand for good B. This implies that good A and good B are substitutes for one another, as they can be used interchangeably and a change in the price of one good affects the demand for the other good.

Quiz 20: Elasticity

Which of the following statements is false?

Cross elasticity of demand is the percentage change in the quantity of a good divided by the percentage change in .

If the cross elasticity of demand for good A with respect to good B is +2.7,then good A is

Vernon spends the following percentages of his budget on the following goods: 23 percent on good A,11 percent on good B,1 percent on good C,and 3 percent on good D.For which good is price elasticity of demand the highest,ceteris paribus?

If Jack bought 18 CDs last year when his income was $20,000 and he buys 19 CDs this year when his income is $25,000,then for Jack CDs are

A good will tend to have a low price elasticity of demand if

If the cross elasticity of demand for two goods is negative,

If Cassandra bought 12 blouses last year when her income was $55,000 and she buys 10 blouses this year when her income is $49,000,then her income elasticity of demand is

If two goods are substitute goods,

If Jack bought 21 CDs last year when his income was $30,000 and he buys 23 CDs this year when his income is $35,000,then his income elasticity of demand is which means that CDs are a(n) good for Jack.

If price rises and total revenue falls,then

If Cassandra bought 16 cotton blouses last year when her income was $40,000 and she buys 14 cotton blouses this year her when income is $35,000,then blouses are

Cross elasticity of demand measures the responsiveness of changes in the quantity of one good to changes in .

The longer the period of time consumers have to adjust to price changes,the the elasticity of demand.

The shorter the period of time consumers have to adjust to price changes,the the elasticity of demand.

If the cross elasticity of demand for good A with respect to good B is -0.87,then good A is

If goods A and B have a cross elasticity of demand that is positive,this is evidence that goods A and B are __________ goods.

If the price of good A decreases by 10 percent and the quantity demanded of good B increases by 10 percent,this is evidence that goods A and B are

Income elasticity of demand for a normal good is always

If the price of good A decreases by 10 percent and the quantity demanded of good B decreases by 10 percent,this is evidence that goods A and B are