Question 1

A good is said to be ʺinferiorʺ if:
A)it is of low quality.
B)consumers buy less of it at a high price.
C)it has a negative income elasticity of demand.
D)it has many substitutes.

Accepted Answer

An inferior good is a good for which demand decreases as income increases. In other words, consumers buy less of it as they become wealthier. This is reflected in a negative income elasticity of demand. Therefore, option C is the correct answer.

Question 2

Suppose that the income elasticity of demand for good X is greater than 1. Other things being equal, which of the following statements is INCORRECT?
A)Good X is a normal good.
B)The quantity demanded of good X decreases as a consumerʹs income declines.
C)A consumer buys more X as income rises, but the share of income spent on good X falls.
D)A consumer buys more X as income rises and the share of income spent on good X also rises.

Accepted Answer

If the income elasticity of demand for good X is greater than 1, it means that the good is income elastic. This means that as income increases, the quantity demanded of good X will also increase. This makes statement A correct. Statement B is incorrect because if the good is income elastic, the quantity demanded of good X will not decrease as a consumer's income declines. Statement C is also correct because even though a consumer buys more X as income rises, the share of income spent on good X falls because the increase in quantity demanded is not proportional to the increase in income. Statement D is incorrect because if the share of income spent on good X also rises with income, it means that the good is income inelastic, which is the opposite of what the question states.

Question 3

The cross-price elasticity of demand measures:
A)the relationship between the demand for one good and the supply of another.
B)the relationship between the demand for one good and the price of another.
C)the relationship between the demand and supply of one good at the intersection of the curves.
D)the elasticity of demand at the intersection of the supply and demand curves.

Accepted Answer

The cross-price elasticity of demand measures the responsiveness of the quantity demanded for one good to a change in the price of another good. This means that it measures the relationship between the demand for one good (the good being analyzed) and the price of another good (the related good). Therefore, choice B is the correct answer.

Question 4

Suppose that the income elasticity of demand for frozen dinners is negative. Other things being equal, which of the following statements is INCORRECT?
A)Frozen dinners are an inferior good.
B)The quantity demanded of frozen dinners increases as a consumerʹs income declines.
C)There exists a negative relationship between income and the demand for frozen dinners.
D)The share of income spent on good X must decrease as a consumerʹs income decreases.

Accepted Answer

The statement "The share of income spent on good X must decrease as a consumerʹs income decreases" is incorrect. If frozen dinners are an inferior good, then the share of income spent on them may actually increase as a consumerʹs income decreases, leading to a larger quantity demanded.

Question 5

A good is said to be ʺnormalʺ if:
A)it is of high quality.
B)consumers buy more of it at a high price.
C)it has few substitutes.
D)it has a positive income elasticity of demand.

Accepted Answer

A normal good is a good for which demand increases as income increases, and vice versa. This means that the income elasticity of demand for a normal good is positive. Therefore, option D is the correct answer.

Question 6

The cross-price elasticity of demand between bananas and apples is most likely:
A)positive.
B)negative.
C)zero.
D)more information is need to determine.

Accepted Answer

Bananas and apples are typically substitute goods, so an increase in the price of one is likely to increase the demand for the other, resulting in a positive cross-price elasticity.

Question 7

The demand for a particular good depends on variables such as:
A)consumer income.
B)price of substitutes.
C)price of complements.
D)all of the above

Accepted Answer

The demand for a particular good depends on various factors, including consumer income, price of substitutes, and price of complements. Therefore, all of the above options are correct. When there is an increase or decrease in any of these factors, it affects the demand for the good in question. For instance, when the consumer income increases, they are likely to purchase more goods, including the particular good in question. On the other hand, when there is a decrease in the price of substitutes or complements, it is likely to increase the demand for the good in question. Hence, all of these factors play an essential role in determining the demand for a particular good.

Question 8

The income elasticity of demand is:
A)the percentage change in quantity demanded divided by the percentage change in price.
B)the percentage change in quantity demanded divided by the percentage change in income.
C)the percentage change in income divided by the percentage change quantity demanded.
D)the percentage change in price divided by the percentage change in income.

Accepted Answer

Income elasticity of demand measures the responsiveness of quantity demanded to changes in income. It is calculated by dividing the percentage change in quantity demanded by the percentage change in income. Option B correctly defines income elasticity of demand.

Question 9

The cross-price elasticity of demand between spaghetti and spaghetti sauce is most likely:
A)positive.
B)negative.
C)zero.
D)more information is needed to determine.

Accepted Answer

Spaghetti and spaghetti sauce are typically complementary goods, meaning that an increase in the price of one would likely lead to a decrease in the demand for the other, resulting in a negative cross-price elasticity of demand.

Question 10

Suppose that the income elasticity of demand for new clothes is positive. Other things being equal, which of the following statements is correct?
A)New clothes are a normal good.
B)The quantity demanded of new clothes decreases as a consumerʹs income declines.
C)There exists a positive relationship between income and the demand for new clothes.
D)all of the above

Accepted Answer

A positive income elasticity of demand indicates that new clothes are a normal good, meaning demand increases with income. Thus, all statements A, B, and C are correct.

Question 11

The percentage change in the quantity of bread demanded divided by the percentage change in price of jelly measures:
A)the cross-price elasticity of demand for bread with respect to jelly.
B)the cross-price elasticity of demand for jelly with respect to bread.
C)the price elasticity of demand for bread.
D)the price elasticity of demand for jelly.

Accepted Answer

The percentage change in the quantity of bread demanded divided by the percentage change in price of jelly measures the responsiveness of the quantity demanded of bread to a change in the price of jelly, which is the definition of cross-price elasticity of demand. Therefore, the answer is A. It is not C or D because the question is asking about the relationship between bread and jelly, not just the responsiveness of demand for one good to a change in its own price. It is also not B because the question is asking about the demand for jelly with respect to bread, but the formula given is measuring the demand for bread with respect to jelly.

Question 12

If the quantity demanded of peanut butter falls by 12% when income rises by 10%, then peanut butter is:
A)an inferior good.
B)a normal good.
C)income-elastic demand.
D)both A and C

Accepted Answer

Since there is a negative relationship between income and the quantity demanded of peanut butter, it is an inferior good. Additionally, since the percentage change in quantity demanded is greater than the percentage change in income, the demand is income-elastic. Therefore, the correct answer is both A and C.

Question 13

If the income elasticity of a good is greater than one, we say that its demand is:
A)price sensitive.
B)income-inelastic.
C)income-elastic.
D)price insensitive.

Accepted Answer

If the income elasticity of a good is greater than one, it means that as income increases, the percentage change in demand is greater than the percentage change in income. This indicates that it is an income-elastic good, meaning that demand is highly responsive to changes in income.

Question 14

If the quantity demanded of restaurant meals increases by 20% when income increases by 10%, the demand for restaurant meals is:
A)price sensitive.
B)income-inelastic.
C)income-elastic.
D)price insensitive.

Accepted Answer

If the percentage change in quantity demanded is greater than the percentage change in income, then the good is income-elastic. In this case, the quantity demanded increased by 20%, which is twice as much as the increase in income (10%). This indicates that restaurant meals are income-elastic, meaning that consumers are responsive to changes in income and will increase their demand for restaurant meals when their income increases.

Question 15

The percentage change in the quantity of peanut butter demanded divided by the percentage change in price of jelly measures:
A)the price elasticity of demand for peanut butter.
B)the price elasticity of demand for jelly.
C)the cross-price elasticity of demand for peanut butter with respect to the price of jelly.
D)the cross-price elasticity of demand for jelly with respect to the price of peanut butter.

Accepted Answer

The percentage change in the quantity of peanut butter demanded divided by the percentage change in price of jelly measures the cross-price elasticity of demand for peanut butter with respect to the price of jelly. This is because it shows how the demand for peanut butter changes as the price of jelly changes, indicating whether the two goods are substitutes or complements. It does not measure the price elasticity of demand for peanut butter or jelly separately, nor does it measure the cross-price elasticity of demand for jelly with respect to the price of peanut butter.

Question 16

Suppose that the income elasticity of demand for good X is positive but less than 1. Other things being equal, which of the following statements is INCORRECT?
A)Good X is a normal good.
B)The quantity demanded of good X decreases as a consumerʹs income declines.
C)A consumer buys more X as income rises, but the share of income spent on good X falls.
D)A consumer buys more X as income rises and the share of income spent on good X also rises.

Accepted Answer

If the income elasticity of demand for good X is positive but less than 1, it means that it is a normal good (choice A). However, the quantity demanded of good X will not decrease as a consumer's income declines (choice B) because the good is still considered a necessity, just a less essential one. As income rises, a consumer will buy more X, but the share of income spent on good X will fall (choice C) because the increase in quantity demanded is not proportionate to the increase in income. Therefore, the only incorrect statement is D, which states that the share of income spent on good X also rises as income rises, which is not true for a good with an income elasticity of demand less than 1.

Question 17

When the price of hamburger went from $3 to $4 a pound, the quantity demanded of buns changed from 30 to 25 packages a day. The cross-price elasticity of demand for buns using the initial value formula)is:
A)1.4.
B)0.5.
C)-0.5.
D)-1.4.

Accepted Answer

The cross-price elasticity of demand can be calculated using the formula:

% change in quantity demanded of buns / % change in price of hamburgers

Using the initial value formula, we get:

% change in quantity demanded of buns = (25-30) / [(25+30)/2] * 100% = -16.67%
% change in price of hamburgers = (4-3) / [(4+3)/2] * 100% = 14.29%

Plugging in the values, we get:

Cross-price elasticity of demand = (-16.67% / 14.29%) = -1.1667

Rounding off to one decimal place, we get:

Cross-price elasticity of demand = -1.2

Therefore, the answer is choice C, which is -0.5, This means that the buns are complements to hamburgers, as the negative sign indicates an inverse relationship between the two products.

Question 18

The cross-price elasticity of demand between telephones and ramen noodles is most likely:
A)positive.
B)negative.
C)zero.
D)greater than one.

Accepted Answer

The answer of The cross-price elasticity of demand between telephones...

Question 19

When the price of hamburger went from $3 to $4 a pound, the quantity demanded of buns changed from 30 to 25 packages a day. The cross-price elasticity of demand for hamburger using the initial value formula)is:
A)1.4.
B)0.6.
C)-0.6.
D)Not enough information to answer this question.

Accepted Answer

The answer of When the price of hamburger went from...

Question 20

If quantity demanded of a good falls by 2% when income falls by 10%, the goodʹs demand is:
A)price sensitive.
B)income-inelastic.
C)income-elastic.
D)price insensitive.

Accepted Answer

The good's demand is considered income-inelastic because the percentage change in quantity demanded (2%) is less than the percentage change in income (10%), indicating that demand does not significantly change with income changes.

Quiz 4: Elasticity: a Measure of Responsiveness

A good is said to be ʺinferiorʺ if:

Suppose that the income elasticity of demand for good X is greater than 1. Other things being equal, which of the following statements is INCORRECT?

The cross-price elasticity of demand measures:

Suppose that the income elasticity of demand for frozen dinners is negative. Other things being equal, which of the following statements is INCORRECT?

A good is said to be ʺnormalʺ if:

The cross-price elasticity of demand between bananas and apples is most likely:

The demand for a particular good depends on variables such as:

The income elasticity of demand is:

The cross-price elasticity of demand between spaghetti and spaghetti sauce is most likely:

Suppose that the income elasticity of demand for new clothes is positive. Other things being equal, which of the following statements is correct?

The percentage change in the quantity of bread demanded divided by the percentage change in price of jelly measures:

If the quantity demanded of peanut butter falls by 12% when income rises by 10%, then peanut butter is:

If the income elasticity of a good is greater than one, we say that its demand is:

If the quantity demanded of restaurant meals increases by 20% when income increases by 10%, the demand for restaurant meals is:

The percentage change in the quantity of peanut butter demanded divided by the percentage change in price of jelly measures:

Suppose that the income elasticity of demand for good X is positive but less than 1. Other things being equal, which of the following statements is INCORRECT?

When the price of hamburger went from $3 to $4 a pound, the quantity demanded of buns changed from 30 to 25 packages a day. The cross-price elasticity of demand for buns using the initial value formula) is:

The cross-price elasticity of demand between telephones and ramen noodles is most likely:

When the price of hamburger went from $3 to $4 a pound, the quantity demanded of buns changed from 30 to 25 packages a day. The cross-price elasticity of demand for hamburger using the initial value formula) is:

If quantity demanded of a good falls by 2% when income falls by 10%, the goodʹs demand is: