Question 1

The price of an airline ticket rises as the amount of time between purchase and flight departure gets smaller.The airlines base the policy on the assumption that

Accepted Answer

The statement implies that consumers tend to have a more urgent need to travel as their departure time approaches, meaning that they are less likely to be deterred by price increases. This suggests that demand becomes less elastic as the departure time approaches, making option D the correct answer. Options A and B are incorrect, as they assume that consumers are not influenced by prices at all, which is not true. Option C is also incorrect, as it suggests that demand becomes more elastic as the departure time approaches, which contradicts the statement.

Question 2

Which of the following is more likely to be the price elasticity of demand for the snake bite treatment antivenom?

Accepted Answer

The price elasticity of demand for snake bite treatment antivenom is likely to be highly inelastic because when someone needs an antivenom, it is usually a life-threatening situation, making them less sensitive to the price. They are likely to pay whatever is necessary to obtain the treatment, indicating a low responsiveness to price changes.

Question 3

A good will tend to be more price elastic if it

Accepted Answer

Luxury goods tend to have more substitute goods available, making consumers more sensitive to price changes. This means that a small change in price can result in a larger change in demand for the good.

Question 4

The price of coffee rose 50 percent and coffee sales fell 25 percent.Doughnut sales also fell 25 percent.From this information, we can conclude that

Accepted Answer

The price of coffee rising and causing a decrease in coffee sales, along with a simultaneous decrease in doughnut sales, suggests that coffee and doughnuts are complements (people often buy them together). The fact that coffee sales fell less proportionately than the price increase indicates inelastic demand for coffee. The cross elasticity of demand being negative (implied by the simultaneous decrease in sales of both goods) further supports these conclusions.

Question 5

A study of New York City (NYC) tax rates concluded that taxes on the nonmanufacturing sector should be higher since that sector has fewer alternatives.Manufacturers are more mobile and may move to avoid higher taxes.This means that

Accepted Answer

Nonmanufacturing firms having relatively inelastic demand for NYC locations means they are less sensitive to changes in tax rates because they have fewer alternatives to relocating, unlike manufacturing firms which can more easily move to avoid higher taxes.

Question 6

If both matches and automobile prices increase by 10 percent, consumers will likely buy

Accepted Answer

Matches are generally considered a necessity with a low price elasticity of demand, meaning consumers will buy about the same quantity even if the price increases. Automobiles, being more expensive and not an immediate necessity, have a higher price elasticity of demand, so consumers are likely to buy fewer when prices increase.

Question 7

In 1975, New York City increased regulated taxi fares by 17.5 percent and expected taxi revenue to increase a like amount.The taxi commission believed taxi demand was

Accepted Answer

The answer of In 1975, New York City increased regulated...

Question 8

The demand for a new effective drug for the cure of AIDS would most likely be

Accepted Answer

The demand for a new effective drug for the cure of AIDS would most likely be highly inelastic because patients in need of the drug would be willing to pay almost any price to obtain it, indicating that changes in price would have little effect on the quantity demanded.

Question 9

If two goods are complements, their cross elasticity of demand will normally be

Accepted Answer

If two goods are complements, it means that they are typically consumed together. For instance, peanut butter and jelly are complements as they are often consumed together. This means that if the price of peanut butter increases, consumers may be less likely to purchase jelly, thus resulting in a decrease in demand for jelly. Therefore, there is an inverse relationship between the price of one good and the quantity demanded of the other good. Hence, the cross elasticity of demand is negative.

Question 10

Which of the following goods will have the most elastic demand at any time?

Accepted Answer

Restaurant meals are considered a luxury item and are not a necessity for survival, so consumers are more likely to adjust their demand based on changes in price. On the other hand, coffee, gasoline, and insulin are typically seen as necessities, so consumers may be less likely to adjust their demand based on price changes.

Question 11

Which of the following goods will have the most inelastic demand at any time?

Accepted Answer

Electricity is considered a necessity and has few substitutes, making its demand more inelastic compared to the other options. Jewelry is a luxury item and has many substitutes, so its demand is more elastic. Big Macs and pork chops are both food items that have some substitutes and are not considered necessities, so their demand is also relatively elastic.

Question 12

Figure 6-9 
-In 1983, government price supports raised the price of sugar above its equilibrium value.Which graph in Figure 6-9 illustrates the impact of sugar price supports on the sugar substitute fructose?

Accepted Answer

When the price of sugar is raised above its equilibrium value due to government price supports, consumers may turn to substitutes like fructose. This would increase the demand for fructose, shifting the demand curve to the right, which is illustrated in graph 3.

Question 13

The price elasticity of new automobile purchases is about 1.2.This implies that an increase of $1,000 on a $10,000 automobile will

Accepted Answer

The price elasticity of new automobile purchases of 1.2 indicates that a 1% increase in price will lead to a 1.2% decrease in the quantity demanded (1.2 x 1% = 1.2%). Therefore, an increase of $1,000 on a $10,000 automobile is a 10% increase in price (1000/10000 x 100). Using the elasticity of 1.2, we can estimate that there would be a 12% decrease in the quantity demanded (1.2 x 10%). So, the number of autos sold would reduce by approximately 12%.

Question 14

The measure used to determine whether two products are substitutes or complements is called

Accepted Answer

Cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. If the cross elasticity of demand is positive, the two goods are substitutes, and if it is negative, they are complements. Therefore, C is the correct choice. A, B, and D are not measures of whether two products are substitutes or complements.

Question 15

Certain goods are related such that an increase in the price of one good decreases the quantity demanded of the other.These goods are

Accepted Answer

Complements are goods that are consumed together, meaning an increase in the price of one good decreases the demand for the other. For example, if the price of peanut butter increases, the demand for jelly (a complement) will decrease.

Question 16

The relationship between a change in consumer income and a resulting change in demand for a good is

Accepted Answer

The relationship between a change in consumer income and a resulting change in demand for a good is known as income elasticity of demand. It measures the responsiveness of demand for a good to a change in consumer income.

Question 17

A relatively large increase in the cost of electricity would likely

Accepted Answer

If there is a significant increase in the cost of electricity, consumers may shift towards using gas for heating, cooking, and other household functions. However, this is not likely to occur immediately. It may take some time for consumers to make the switch to gas and for gas infrastructure to be set up in areas where it is not currently available. Therefore, in the short term, there may be a decrease in the use of electricity, but in the long term, there is likely to be a shift towards greater use of gas and reduced use of electricity.

Question 18

The elasticity of supply is calculated by

Accepted Answer

The elasticity of supply is calculated by dividing the percentage change in quantity supplied by the percentage change in price. This formula measures the responsiveness of producers to changes in price. It tells us how much the quantity supplied will change when there is a change in price.

Question 19

When OPEC raises the price of petroleum, American expenditures on oil imports increase, suggesting that

Accepted Answer

When OPEC raises the price of petroleum, American expenditures on oil imports increase, indicating that the United States' elasticity of demand for imported oil is less than one. This means that a price increase leads to a proportionately smaller decrease in the quantity demanded. In other words, the demand for imported oil is relatively inelastic, and consumers are willing to pay a higher price for a given amount of oil.

Question 20

A decrease in the price of rice from 50 cents to 40 cents a pound increases consumption from 16 to 20 tons a week in Gainesville and from 160 to 200 tons in the larger city of Miami.The elasticity of demand for rice is

Accepted Answer

The percentage change in quantity demanded is the same in both cities (25%), and the percentage change in price is also the same (20%). Therefore, the elasticity of demand, which is the percentage change in quantity demanded divided by the percentage change in price, is equal in both cities regardless of the population difference.

Quiz 6: Demand and Elasticity