Question 1

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni
A)and soy-burgers are both normal goods with income elasticities equal to 1.
B)is an inferior good and soy-burgers are normal goods; both have income elasticities of 1.
C)is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.
D)and soy-burgers are both inferior goods with income elasticities equal to -1.

Accepted Answer

Macaroni is an inferior good because its consumption decreases as income increases, indicating a negative income elasticity. Soy-burgers are a normal good because their consumption increases with income, indicating a positive income elasticity. Using the midpoint method to calculate income elasticity of demand gives -1 for macaroni and 1 for soy-burgers.

Question 2

For which of the following goods is the income elasticity of demand likely lowest?
A)Water
B)Pineapples
C)Sapphire pendant necklaces
D)Yachts

Accepted Answer

Water is a basic necessity, and its demand is less sensitive to changes in income compared to luxury items like sapphire pendant necklaces and yachts, or even non-essential food items like pineapples.

Question 3

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
A)negative, and the good is an inferior good.
B)negative, and the good is a normal good.
C)positive, and the good is a normal good.
D)positive, and the good is an inferior good.

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is $ \frac{2\%}{4\%} = 0.5 $, which is positive, indicating that the good is a normal good (as demand increases with income).

Question 4

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?
A)The flatter supply curve represents a supply that is inelastic relative to the supply represented by the steeper supply curve.
B)The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.
C)Given two prices with which to calculate the price elasticity of supply, that elasticity would be the same for both curves.
D)A decrease in demand will increase total revenue if the steeper supply curve is relevant, while a decrease in demand will decrease total revenue if the flatter supply curve is relevant.

Accepted Answer

The steeper supply curve represents a supply that is more inelastic compared to the flatter supply curve. This is because a steep curve indicates that a change in price leads to a relatively smaller change in quantity supplied, characteristic of inelastic supply. Conversely, a flatter curve suggests that a small change in price leads to a larger change in quantity supplied, indicating more elastic supply.

Question 5

The price elasticity of supply measures how much
A)the quantity supplied responds to changes in input prices.
B)the quantity supplied responds to changes in the price of the good.
C)the price of the good responds to changes in supply.
D)sellers respond to changes in technology.

Accepted Answer

The price elasticity of supply measures the responsiveness of the quantity supplied of a good to a change in its price, not to changes in input prices, technology, or how the price of the good responds to changes in supply.

Question 6

Table 5-3
​
​
 $$\begin{array} { | c | c | c | } 
\hline \begin{array} { c } 
\text { Income } \
\text { (Dollars) }
\end{array} & \begin{array} { c } 
\text { Quantity of Good X } \
\text { Purchased }
\end{array} & \begin{array} { c } 
\text { Quantity of Good Y } \
\text { Purchased }
\end{array} \
\hline 30,000 & 2 & 20 \
\hline 40,000 & 6 & 10 \
\hline
\end{array}$$
-Refer to Table 5-3. Using the midpoint method, the income elasticity of demand for good Y is
A)2.33, and good Y is a normal good.
B)−2.33, and good Y is an inferior good.
C)−0.43, and good Y is a normal good.
D)−0.43, and good Y is an inferior good.

Accepted Answer

The answer of Table 5-3
​
​
 \[\begin{array} { | c |...

Question 7

Cross-price elasticity of demand measures how
A)the price of one good changes in response to a change in the price of another good.
B)the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
C)the quantity demanded of one good changes in response to a change in the price of another good.
D)strongly normal or inferior a good is.

Accepted Answer

Cross-price elasticity of demand measures the responsiveness of the quantity demanded for one good in response to a change in the price of another good.

Question 8

If two goods are complements, their cross-price elasticity will be
A)positive.
B)negative.
C)zero.
D)equal to the difference between the income elasticities of demand for the two goods.

Accepted Answer

When two goods are complements, their cross-price elasticity is negative because an increase in the price of one good leads to a decrease in the demand for the other good.

Question 9

Scenario 5-1
​
Suppose the demand function for good X is given by: QS1U1B1dxS1U1B0 = 15 − 0.5PS1U1B1xS1U1B0 − 0.8PS1U1B1yS1U1B0 where QS1U1B1dxS1U1B0 is the quantity demanded of good X, PS1U1B1xS1U1B0 is the price of good X, and PS1U1B1yS1U1B0 is the price of good Y, which is related to good X.
-Refer to Scenario 5-1. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y decreases from $10 to $8, the cross-price elasticity of demand is about
A)0.57, and X and Y are substitutes.
B)−0.22, and X and Y are complements.
C)−0.80, and X and Y are complements.
D)−2.57, and X and Y are complements.

Accepted Answer

The answer of Scenario 5-1
​
Suppose the demand function for good...

Question 10

A key determinant of the price elasticity of supply is the
A)time horizon.
B)income of consumers.
C)price elasticity of demand.
D)importance of the good in a consumer's budget.

Accepted Answer

The time horizon is a key determinant of the price elasticity of supply because the ability of producers to respond to price changes varies over different time periods. In the short term, supply might be relatively inelastic due to production constraints, while in the long term, firms can adjust their production levels more easily, making supply more elastic.

Question 11

Last year, Damaris bought 8 burgers when her income was $43,000. This year, her income is $54,000, and she purchased 9 burgers. Holding other factors constant and using the midpoint method, it follows that Damaris's income elasticity of demand is about
A)1.93, and Damaris regards burgers as inferior goods.
B)1.93, and Damaris regards burgers as normal goods.
C)0.52, and Damaris regards burgers as inferior goods.
D)0.52, and Damaris regards burgers as normal goods.

Accepted Answer

The income elasticity of demand (IED) is calculated using the formula: IED = [(Q2 - Q1) / ((Q2 + Q1) / 2)] / [(I2 - I1) / ((I2 + I1) / 2)], where Q1 and Q2 are the initial and final quantities demanded, and I1 and I2 are the initial and final incomes. Plugging in the given values: IED = [(9 - 8) / ((9 + 8) / 2)] / [($54,000 - $43,000) / (($54,000 + $43,000) / 2)] = (1 / 8.5) / ($11,000 / $48,500) ≈ 0.52. Since the IED is positive and less than 1, it indicates that burgers are a normal good for Damaris, but not a luxury good (which would require an IED > 1).

Question 12

For which of the following goods is the income elasticity of demand likely highest?
A)Water
B)Boats
C)Doctor's visits
D)Shoes

Accepted Answer

Boats are considered luxury items, and the demand for luxury items tends to increase more than proportionally as income increases, making their income elasticity of demand higher compared to necessities like water, doctor's visits, and basic clothing items like shoes.

Question 13

Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to
A)fall by 8 percent.
B)fall by 50 percent.
C)rise by 8 percent.
D)rise by 50 percent.

Accepted Answer

The answer of Suppose the cross-price elasticity of demand between...

Question 14

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would
A)be negative, and your roommate's would be positive.
B)be positive, and your roommate's would be negative.
C)be zero, and your roommate's would approach infinity.
D)approach infinity, and your roommate's would be zero.

Accepted Answer

Income elasticity of demand measures how the quantity demanded of a good changes as consumer income changes. A positive income elasticity indicates that as income increases, demand for the good increases (normal good), while a negative income elasticity indicates that as income increases, demand for the good decreases (inferior good). In this scenario, you buy more Ramen noodles as your income increases, indicating a positive income elasticity for you. Your roommate buys fewer Ramen noodles in favor of other foods, indicating a negative income elasticity for your roommate.

Question 15

For which pairs of goods is the cross-price elasticity most likely to be positive?
A)Peanut butter and jelly
B)Bicycle frames and bicycle tires
C)Pens and pencils
D)Digital college textbooks and iPhones

Accepted Answer

Pens and pencils are substitute goods, meaning that an increase in the price of one is likely to lead to an increase in the demand for the other, resulting in a positive cross-price elasticity.

Question 16

The supply of a good will be more elastic, the
A)more the good is considered a luxury.
B)broader is the definition of the market for the good.
C)larger the number of close substitutes for the good.
D)longer the time period being considered.

Accepted Answer

The supply of a good is more elastic over a longer time period because producers have more time to adjust their production processes and resources in response to price changes.

Question 17

Suppose that when the price of good X increases from $600 to $720, the quantity demanded of good Y decreases from 67 to 15. Using the midpoint method, the cross-price elasticity of demand is about
A)6.98, and X and Y are substitutes.
B)-0.14, and X and Y are complements.
C)0.14, and X and Y are substitutes.
D)-6.98, and X and Y are complements.

Accepted Answer

The cross-price elasticity of demand is calculated using the midpoint method as [(15 - 67) / ((15 + 67) / 2)] / [(720 - 600) / ((720 + 600) / 2)] = -6.98. A negative cross-price elasticity indicates that goods X and Y are complements.

Question 18

Income elasticity of demand measures how
A)the quantity demanded changes as consumer income changes.
B)consumer purchasing power is affected by a change in the price of a good.
C)the price of a good is affected when there is a change in consumer income.
D)many units of a good a consumer can buy given a certain income level.

Accepted Answer

Income elasticity of demand specifically measures the responsiveness of the quantity demanded of a good to a change in consumer income, indicating how changes in income levels affect the demand for a product.

Question 19

If the price elasticity of supply is 0.7, and a price increase led to a 4.2 percent increase in quantity supplied, then the price increase is about
A)0.17 percent.
B)2.94 percent.
C)6.00 percent.
D)5.00 percent.

Accepted Answer

The answer of If the price elasticity of supply is...

Question 20

If the price elasticity of supply is 0.8, and price increased by 21 percent, quantity supplied would
A)increase by 26.25 percent.
B)increase by 16.80 percent.
C)decrease by 26.25 percent.
D)decrease by 16.80 percent.

Accepted Answer

The price elasticity of supply formula is percentage change in quantity supplied divided by percentage change in price. So, a 0.8 elasticity with a 21% price increase gives: 0.8 = (Quantity Supplied Change %) / 21%. Solving for Quantity Supplied Change % gives 16.80%.

Quiz 5: Elasticity and Its Application

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. Using the midpoint method, we can conclude that for Heather, macaroni

For which of the following goods is the income elasticity of demand likely lowest?

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. Which of the following statements is correct?

The price elasticity of supply measures how much

Cross-price elasticity of demand measures how

If two goods are complements, their cross-price elasticity will be

A key determinant of the price elasticity of supply is the

Last year, Damaris bought 8 burgers when her income was $43,000. This year, her income is $54,000, and she purchased 9 burgers. Holding other factors constant and using the midpoint method, it follows that Damaris's income elasticity of demand is about

For which of the following goods is the income elasticity of demand likely highest?

Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

For which pairs of goods is the cross-price elasticity most likely to be positive?

The supply of a good will be more elastic, the

Suppose that when the price of good X increases from $600 to $720, the quantity demanded of good Y decreases from 67 to 15. Using the midpoint method, the cross-price elasticity of demand is about

Income elasticity of demand measures how

If the price elasticity of supply is 0.7, and a price increase led to a 4.2 percent increase in quantity supplied, then the price increase is about

If the price elasticity of supply is 0.8, and price increased by 21 percent, quantity supplied would