Question 1

Suppose that the cross price elasticity of demand between good X and good Y is -1.55. This indicates that the two goods are

Accepted Answer

The negative cross price elasticity of demand indicates that as the price of one good increases, the demand for the other good decreases, which is characteristic of complementary goods.

Question 2

Suppose that the amount of computer printers demanded increases by 20 percent when the price of personal computers falls by 10 percent. The cross price elasticity of demand between computer printers and personal computers is

Accepted Answer

The cross price 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 20% / -10% = -2.0.

Question 3

Why is elasticity of demand greater for goods that are a large share of a consumer's budget?

Accepted Answer

The answer of Why is elasticity of demand greater for...

Question 4

Which of the following is more likely to have perfectly elastic or nearly perfectly elastic demand?

Accepted Answer

Milk produced by a Wisconsin dairy farmer is likely to have nearly perfectly elastic demand because it is a standardized product with many substitutes available from other farmers, making consumers highly responsive to price changes.

Question 5

In which of the following situations is the absolute price elasticity of demand for an item most likely to exceed a value of 1?

Accepted Answer

The absolute price elasticity of demand is most likely to exceed 1 (indicating elastic demand) when consumers have considerable time to adjust to a change in the price of the item. This allows them to find substitutes or alter consumption habits more easily compared to situations where adjustments must be made quickly.

Question 6

If the cross price elasticity of demand between two goods is negative, then the two goods are

Accepted Answer

A negative cross price elasticity of demand indicates that the two goods are complementary, meaning that an increase in the price of one good will lead to a decrease in the demand for the other good.

Question 7

Generally, expenses on toothpaste are a small part of a consumer's budget, so the demand for toothpaste is more likely to be

Accepted Answer

Since toothpaste is a small part of a consumer's budget, the demand for it is more likely to be inelastic. This means that changes in the price of toothpaste would not significantly affect the quantity demanded by consumers.

Question 8

After full adjustment to a price change has occurred, the absolute price elasticity of demand for an item is equal to 1. In the short run, the absolute price elasticity of demand for the item was probably

Accepted Answer

In the short run, consumers have less time to adjust to price changes, so demand is typically less elastic, meaning the elasticity is likely less than 1.

Question 9

"The price elasticity of demand for a particular good is smaller in the long run because consumers adapt to higher prices over time." Do you agree or disagree? Explain.

Accepted Answer

The answer of "The price elasticity of demand for a...

Question 10

Suppose that when the price of good X changes, the quantity of good Y demanded remains the same. The cross price elasticity of demand is

Accepted Answer

If the quantity of good Y demanded remains the same when the price of good X changes, it means that the two goods are not related, and there is no substitution effect. Therefore, the cross price elasticity of demand is zero.

Question 11

If the absolute price elasticity of demand is equal to 1 in the short run, then in the long run, other things being equal, the absolute price elasticity of demand will be

Accepted Answer

In the long run, consumers have more time to adjust their behavior and find substitutes for the good or service, thus making their demand more elastic, which means the absolute price elasticity of demand will be greater than one.

Question 12

Suppose that the cross price elasticity of demand between goods A and B equals 1.5. Which of the following is TRUE?

Accepted Answer

The cross price elasticity of demand is positive, indicating that goods A and B are substitutes.

Question 13

If goods X and Y are complements, then the cross price elasticity of demand will be

Accepted Answer

Complementary goods have a negative cross-price elasticity of demand, as an increase in the price of one good leads to a decrease in the demand for the complementary good.

Question 14

Generally, expenses on a sport utility vehicle are a large part of a consumer's budget, so the demand for sport utility vehicles is more likely to be

Accepted Answer

When expenses on a good are a large part of a consumer's budget, the demand for that good tends to be elastic because consumers are more sensitive to price changes.

Question 15

A product that has an elastic demand curve has all of the following characteristics EXCEPT

Accepted Answer

A product with an elastic demand curve has many substitutes, which means that consumers can easily switch to a different product if the price of the original product increases. A consumer can also wait to buy the product, meaning that the demand for the product is not urgent. It is also likely that the product is not a large part of a consumer's income, as this would make the demand less elastic. The only characteristic that does not apply to a product with an elastic demand curve is that it has few or no substitutes.

Question 16

Which has a more elastic demand: hamburger or beef?

Accepted Answer

The answer of Which has a more elastic demand: hamburger...

Question 17

Suppose that the number of units of good X consumed falls 12 percent when the price of good Y falls 8 percent. The cross price elasticity of demand between goods X and Y is

Accepted Answer

The answer of Suppose that the number of units of...

Question 18

Suppose that when the price of root beer rises 10%, the quantity of pizza demanded falls 20%. This would mean that pizza and root beer are

Accepted Answer

The negative sign indicates that the two goods are complements. The magnitude of the cross price elasticity (-2.0) means that a 10% increase in the price of root beer leads to a 20% decrease in the quantity demanded of pizza, indicating a strong complementarity between the two goods.

Question 19

If the cross price elasticity of demand between Los Angeles Lakers professional basketball tickets and Los Angeles Dodgers professional baseball tickets is positive, then the two goods are

Accepted Answer

If the cross price elasticity of demand between two goods is positive, then an increase in the price of one good will lead to an increase in the demand for the other good. This indicates that the two goods are substitutes, meaning that consumers will switch from one good to the other depending on their relative prices. Therefore, the best choice is A, substitutes.

Question 20

When two goods are substitutes for each other, the cross price elasticity of demand

Accepted Answer

When two goods are substitutes for each other, an increase in the price of one good will lead to an increase in the demand for the other good. This means that the cross price elasticity of demand will be positive.

Quiz 19: Demand and Supply Elasticity