Question 1

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

Accepted Answer

The cross-price elasticity measures the responsiveness of the demand for a good due to changes in the price of a related good. Therefore, D is the correct answer. The own-price elasticity measures the responsiveness of demand to changes in the price of the same good, while the income elasticity measures the responsiveness of demand to changes in income. Log-linear elasticity is not a commonly used term in economics.

Question 2

Suppose demand is given by Q _x^d = 50 - 4P_x + 6P_y + A_x, where P_x = $4, P_y = $2, and A_x = $50.What is the quantity demanded of good x?

Accepted Answer

The quantity demanded of good x can be calculated by substituting the given values into the demand equation: Q = 50 - 4(4) + 6(2) + 50 = 50 - 16 + 12 + 50 = 96.

Question 3

Suppose demand is given by Q _x^d = 50 - 4P_x + 6P_y + A_x, where P_x = $4, P_y = $2, and A_x = $50.What is the advertising elasticity of demand for good x?

Accepted Answer

The answer of Suppose demand is given by Q _x^d...

Question 4

You are the manager of a popular shoe company.You know that the advertising elasticity of demand for your product is 0.15.How much will you have to increase advertising in order to increase demand by 10%?

Accepted Answer

We use the formula:
Advertising Elasticity of Demand = % Change in Quantity demanded / % Change in Advertising

Given that Advertising Elasticity of Demand is 0.15 (or 0.15/1), we need to find out the % change in advertising required to cause a 10% increase in demand.

Let's substitute the values in the formula and solve for % Change in Advertising:

0.15/1 = 10% / % Change in Advertising

% Change in Advertising = (0.15/1) * (100/10) = 1.5

Therefore, the shoe company needs to increase their advertising by 1.5 times or 150% (since the initial advertising was considered as 100%) to achieve a 10% increase in demand.

Thus, the answer is C) 66.7%.

Question 5

If the cross-price elasticity between good A & B is negative, we know the goods are:

Accepted Answer

A negative cross-price elasticity means that as the price of good A increases, the quantity demanded of good B decreases. This is a characteristic of complementary goods, which are goods that are often consumed together. Examples include cereal and milk or gasoline and cars. When the price of one good increases, it makes the other good less appealing, leading to a decrease in the quantity demanded.

Question 6

You are the manager of a supermarket, and know that the income elasticity of peanut butter is exactly -0.7.Due to the recession, you expect incomes to drop by 15% next year.How should you adjust your purchase of peanut butter?

Accepted Answer

The income elasticity of demand is -0.7, meaning peanut butter is an inferior good. A 15% decrease in income will lead to a 10.5% increase in demand for peanut butter (-0.7 * -15% = 10.5%).

Question 7

If the cross-price elasticity between ketchup and hamburgers is -1.2, a 4% increase in the price of ketchup will lead to a 4.8%:

Accepted Answer

The cross-price elasticity of -1.2 indicates that ketchup and hamburgers are complements. A 4% increase in the price of ketchup will lead to a 4.8% decrease in the quantity demanded of hamburgers.

Question 8

If the price of pork chops falls from $8 to $6, and this leads to an increase in demand for apple sauce from 100 to 140 jars, what is the cross price-elasticity of apple sauce and pork chops at a pork chop price of $6?

Accepted Answer

The answer of If the price of pork chops falls...

Question 9

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H.Then good x is:

Accepted Answer

If the demand for good x increases when income increases, then it is a normal good. The term  PS1U1B1xS1U1B0S1U1P1dS1S1P0 in the demand function represents the effect of income on the demand for good x, and it has a positive coefficient (S1U1B1>0). Therefore, good x is a normal good.

Question 10

We would expect the own price elasticity of demand for food to be:

Accepted Answer

The demand for food is generally less elastic than the demand for specific items like cereal because food is a necessity and has fewer substitutes compared to specific food items.

Question 11

Suppose the demand for good x is lnQ_x^d = 21 - 0.8 lnP_x - 1.6 lnP_y + 6.2 lnM + 0.4 lnA_x.Then we know that the own-price elasticity for good x is:

Accepted Answer

The own-price elasticity is the coefficient of lnP_x, which is -0.8. Since the absolute value is less than 1, the demand is inelastic.

Question 12

Suppose the demand function is Q _x^d = 100 - 8P_x + 6P_y B M.If P_x = $4, P_y = $2, and M = $10, what is the cross-price elasticity of good x with respect to the price of good y?

Accepted Answer

The cross-price elasticity of demand is calculated as the percentage change in the quantity demanded of good x divided by the percentage change in the price of good y. In this case, the demand function is Q _x^d = 100 - 8P_x + 6P_y B M. If P_x = $4, P_y = $2, and M = $10, then the cross-price elasticity of demand is:```E_xy = (dQ _x^d / dP_y) * (P_y / Q _x^d) = (6 / 100) * (2 / 80) = 0.15```Therefore, the correct answer is A) 0.17.

Question 13

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H.Then the demand for good x is:

Accepted Answer

The answer of Suppose the demand function is given by...

Question 14

An income elasticity less than zero tells us that the good is:

Accepted Answer

An income elasticity less than zero means that as income increases, the quantity demanded of the good decreases. This is characteristic of an inferior good, which is a type of good that consumers demand less of as their income increases.

Question 15

Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H.Then the cross-price elasticity between goods x and y is:

Accepted Answer

To calculate the cross-price elasticity between goods x and y, we need to take the derivative of the demand function of x with respect to the price of y, and multiply it by the ratio of the price of y to the demand function of x. Cross-price elasticity of x with respect to y = (dQx/dPy) * (Py/Qx) Taking the derivative of the demand function of x with respect to the price of y, we get: dQx/dPy = (-8P_x^)/(10.5) Substituting the values given in the question, we get: dQx/dPy = (-8*10)/(10.5) = -7.62 To calculate the ratio of the price of y to the demand function of x, we need to use the midpoint method: (Py2 - Py1)/[(Py1 + Py2)/2] / (Qx2 - Qx1)/[(Qx1 + Qx2)/2] Let's assume Py1 = 10, Py2 = 11, Qx1 = 40, Qx2 = 45 (since we don't have any specific values for the prices and quantities of x and y in the question). Substituting the values, we get: (11 - 10)/[(11 + 10)/2] / (45 - 40)/[(40 + 45)/2] = 1.00 Multiplying both the values, we get: Cross-price elasticity of x with respect to y = -7.62 * 1.00 = -7.62 But cross-price elasticity is always positive by convention. Hence, taking the absolute value of the answer, we get: Cross-price elasticity of x with respect to y = 7.62 Now, we need to calculate the own-price elasticity of x to determine whether x and y are substitutes or complements. Own-price elasticity of x = (dQx/dPx) * (Px/Qx) Taking the derivative of the demand function of x with respect to the price of x, we get: dQx/dPx = (8P^)/(10.5) Substituting the values given in the question, we get: dQx/dPx = (8*10)/(10.5) = 7.62 To calculate the ratio of the price of x to the demand function of x, we need to use the midpoint method: (Px2 - Px1)/[(Px1 + Px2)/2] / (Qx2 - Qx1)/[(Qx1 + Qx2)/2] Let's assume Px1 = 20, Px2 = 22, Qx1 = 40, Qx2 = 45. Substituting the values, we get: (22 - 20)/[(22 + 20)/2] / (45 - 40)/[(40 + 45)/2] = 1.20 Multiplying both the values, we get: Own-price elasticity of x = 7.62 * 1.20 = 9.14 Since the own-price elasticity of x is greater than one, x is elastic, i.e., a change in the price of x leads to a relatively larger change in the quantity demanded of x. Hence, x and y are substitutes. But the question asks for the cross-price elasticity of x with respect to y, which is the absolute value of -7.62, i.e., 7.62. Hence, the answer is B.

Question 16

Suppose the demand for good x is lnQ_x^d = 21 - 0.8 lnP_x - 1.6 lnP_y + 6.2 lnM + 0.4 lnA_x.Then we know goods x and y are:

Accepted Answer

The answer of Suppose the demand for good x is...

Question 17

If the income elasticity for lobster is 0.4, a 40% increase in income will lead to a:

Accepted Answer

Income elasticity of demand measures how much the quantity demanded of a good responds to a change in income. With an elasticity of 0.4, a 40% increase in income will lead to a 0.4 * 40% = 16% increase in demand for lobster.

Question 18

The statistical analysis of economic phenomenon is defined as:

Accepted Answer

The statistical analysis of economic phenomenon is commonly known as econometrics. It is a branch of economics that uses statistical methods to analyze economic data and make forecasts. Variance, confidence intervals, and standard deviation are all statistical concepts, but they do not define the overall field of econometrics.

Question 19

The elasticity that measures the responsiveness of consumer demand to changes in income is the:

Accepted Answer

The question explicitly mentions consumer demand's responsiveness to changes in income, which means we are looking for the income elasticity. The other options involve price changes and therefore don't apply to this question.

Question 20

Suppose the demand for good x is lnQ_x^d = 21 - 0.8 lnP_x - 1.6 lnP_y + 6.2 lnM + 0.4 lnA_x.Then we know good x is:

Accepted Answer

The demand function shows that the quantity of good x demanded increases with income (lnM) and decreases with the price of good x (lnP_x) and the price of good y (lnP_y). Since the coefficient on lnM is positive, good x is a normal good. An inferior good is a good whose demand decreases as income increases, and a Giffen good is a theoretical concept where demand increases as price increases, but this is not the case for good x in this demand function. Elasticity cannot be determined from the given information.

Quiz 3: Quantitative Demand Analysis

The elasticity which shows the responsiveness of the demand for a good due to changes in the price of a related good is the:

Suppose demand is given by Q xd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50.What is the quantity demanded of good x?

Suppose demand is given by Q xd = 50 - 4Px + 6Py + Ax, where Px = $4, Py = $2, and Ax = $50.What is the advertising elasticity of demand for good x?