Question 1

What does income elasticity measure?
A)How a good's quantity demanded responds to change in the good's price.
B)How a good's quantity demanded responds to change in the price of another good.
C)How a good's quantity demanded responds to change in buyers' incomes.
D)How a good's quantity demanded responds to producers' incomes.

Accepted Answer

Income elasticity measures how a good's quantity demanded responds to changes in buyers' incomes. This helps analysts understand how sensitive a product is to economic changes and can help businesses make decisions about pricing, marketing, and production.

Question 2

Consider the following pairs of items: 
a.shampoo and conditioner
b.iPhones and earbuds
c.a laptop computer and a desktop computer
d.beef and pork
e.air-travel and weed killer
Which of the pairs listed will have cross-price elasticity of zero?
A)a and b only
B)c only, since most people cannot do without computers
C)e only
D)none of the pairs listed

Accepted Answer

The answer of Consider the following pairs of items: 
a.shampoo...

Question 3

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09.This means that________.
A)an increase in the price of beer will increase the quantity demanded of beer, and beer is a normal good.
B)an increase in the price of beer will lead to an increase in revenue for beer sellers, and beer is a normal good.
C)a decrease in the price of beer will lead to an increase in revenue for beer sellers, and beer is an inferior good.
D)an increase in the price of beer will lead to a decrease in the quantity demanded of beer, and beer is a necessity.

Accepted Answer

The price elasticity of beer being -0.30 indicates that a 1% increase in the price of beer will lead to a 0.30% decrease in the quantity demanded, which is inelastic demand. This means that an increase in price will increase total revenue for beer sellers. The income elasticity of beer being 0.09 means that as income increases, the demand for beer slightly increases, indicating that beer is a normal good, not a necessity or an inferior good.

Question 4

Suppose that at a price of $55, 100 units were sold while at a price of $33, 153 units were sold.Without calculating the price elasticity value, can you determine whether demand is elastic, unit-elastic, or inelastic? Explain your answer.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of Suppose that at a price of $55,...

Question 5

Consider the following pairs of items: 
a.shampoo and conditioner
b.iPhones and earbuds
c.a laptop computer and a desktop computer
d.beef and pork
e.air-travel and weed killer
Which of the pairs listed will have a negative cross-price elasticity?
A)a and b only
B)c and d only
C)e only
D)a, b, and c only

Accepted Answer

The answer of Consider the following pairs of items: 
a.shampoo...

Question 6

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are:
A)substitutes.
B)complements.
C)inferior.
D)normal.

Accepted Answer

The answer of If the cross-price elasticity of demand for...

Question 7

Studies show that the income elasticity of demand for wine is approximately five.What does this mean?
A)A 1 per cent decrease in the price of wine leads to a 5 per cent increase in wine consumption.
B)A 1 per cent increase in income leads to a 5 per cent increase in wine consumption.
C)A 5 per cent increase in income leads to a 1 per cent increase in wine consumption.
D)Wine is a relatively elastic good.

Accepted Answer

The income elasticity of demand measures how much the quantity demanded of a good changes in response to a change in income. A positive income elasticity means that as income rises, so does the demand for the good. A value of 5 indicates that a 1% increase in income results in a 5% increase in the quantity of wine demanded. Therefore, choice B is the correct answer.

Question 8

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.This means that________.
A)a 1 per cent decrease in the price of grapefruit juice leads to a 6 per cent increase in orange juice consumption.
B)a 6 per cent increase in the price of grapefruit juice leads to a 1 per cent increase in orange juice consumption.
C)if the price of grapefruit juice rises by $1, 6 more cartons of orange juice will be purchased.
D)the demand for orange juice is 6 times more than the demand for grapefruit juice.

Accepted Answer

A positive cross-price elasticity of demand indicates that the two goods are substitutes. A value of 6 means that a 1% decrease in the price of grapefruit juice leads to a 6% increase in the demand for orange juice.

Question 9

If the price elasticity of demand is unit-elastic, a 10 per cent increase in price will result in a 10 per cent increase in revenue.

Accepted Answer

If the price elasticity of demand is unit-elastic, a 10% increase in price will result in a 10% decrease in quantity demanded. Therefore, total revenue will remain unchanged, not increase by 10%.

Question 10

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars.So, for these people, the cross-price elasticity of demand between petrol and public transportation is:
A)positive.
B)negative.
C)zero.
D)infinity.

Accepted Answer

The cross-price elasticity of demand between petrol and public transportation is positive because as the price of petrol increases, people are more likely to use public transportation, indicating that these goods are substitutes.

Question 11

How is cross-price elasticity of demand calculated?
A)As the percentage change in quantity demanded divided by percentage change in price of a good
B)As the percentage change in quantity demanded of one good divided by percentage change in price of a different good
C)As the percentage change in quantity sold divided by percentage change in buyers' incomes
D)As the percentage change in quantity supplied divided by percentage change in price of a good

Accepted Answer

Cross-price elasticity of demand measures the responsiveness of demand for one good in response to a change in the price of a different good. It is calculated as the percentage change in quantity demanded of one good divided by the percentage change in price of a different good.

Question 12

When Audrina raised the price of her homemade cookies, her total revenue increased.This suggests that the demand for Audrina's cookies is elastic.

Accepted Answer

If the demand for Audrina's cookies were elastic, then increasing the price would decrease the total revenue, as consumers would be sensitive to the price change and purchase fewer cookies. The fact that her total revenue increased suggests that the demand for her cookies is inelastic, meaning that consumers are willing to pay a higher price for her cookies regardless of the price increase.

Question 13

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is:
A)one that sells an inferior good.
B)one that sells a necessity good.
C)one that sells a luxury good.
D)one that sells a price inelastic good.

Accepted Answer

In a booming economy with rising incomes, consumers are more likely to spend money on luxury goods as they have extra income to spend on non-essential items. Therefore, a firm that sells luxury goods would be able to increase its sales as their target market would have more disposable income to spend on their products.

Question 14

What is income elasticity if an 8 per cent increase in income leads to a 4 per cent increase in quantity demanded for organic produce?
A)-0.66
B)0)5
C)1)5
D)2

Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is 4% / 8% = 0.5.

Question 15

If a firm is in an antitrust court case being accused of monopolising a product, what would the firm hire an economist to show?
A)The cross-price elasticity of demand between the firm's good and another is negative.
B)The cross-price elasticity of demand between the firm's good and another is positive.
C)The price elasticity of demand for the firm's good is highly inelastic.
D)The income elasticity of the firm's good is inferior.

Accepted Answer

The firm would hire an economist to show that the cross-price elasticity of demand between the firm's good and another is positive, meaning that there are substitutes for the product and the firm does not have complete control over the market. This would weaken the case of the accuser claiming that the firm is monopolizing the market.

Question 16

Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1.Increasing ticket prices will increase the total revenue from ticket sales.

Accepted Answer

If the absolute value of the price elasticity of demand for basketball game tickets is greater than 1, then demand is considered elastic. This means that as prices increase, quantity demanded will decrease by a relatively larger proportion. Therefore, increasing ticket prices will actually decrease the total revenue from ticket sales.

Question 17

If demand for a product is perfectly inelastic, a change in price will not change total revenue.

Accepted Answer

The answer of If demand for a product is perfectly...

Question 18

Explain the relationship between price elasticity of demand and total revenue.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of Explain the relationship between price elasticity of...

Question 19

Linesha, a university student working part-time, receives a wage increase.An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.Based on this information,
A)DVDs and Blu-ray discs are substitutes.
B)Blu-ray discs are normal goods and DVDs are inferior goods.
C)DVDs and Blu-ray discs are normal goods.
D)the cross-price elasticity between DVDs and Blu-ray discs is negative.

Accepted Answer

Linesha's behavior suggests that with an increase in income, she buys more Blu-ray discs and fewer DVDs, indicating Blu-ray discs are normal goods and DVDs are inferior goods.

Question 20

You are the manager of a theatre.At present the theatre charges the same admission price of $8 to all customers, regardless of age.You propose a two-tier pricing scheme: $5 for children under the age of 12 and $10 for adults.You tell your supervisor that your proposal is likely to increase revenues.What must be true about the price elasticity of demand if your proposal is to achieve its goal of raising revenue? Explain your answer.
__________________________________________________________________________________________________________________________________________________________________________________________

Accepted Answer

The answer of You are the manager of a theatre.At...

Quiz 4: Elasticity: The Responsiveness of Demand and Supply

What does income elasticity measure?

Consider the following pairs of items: a.shampoo and conditioner b.iPhones and earbuds c.a laptop computer and a desktop computer d.beef and pork e.air-travel and weed killer Which of the pairs listed will have cross-price elasticity of zero?

Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09.This means that________.

Consider the following pairs of items: a.shampoo and conditioner b.iPhones and earbuds c.a laptop computer and a desktop computer d.beef and pork e.air-travel and weed killer Which of the pairs listed will have a negative cross-price elasticity?

If the cross-price elasticity of demand for computers and software is negative, this means the two goods are:

Studies show that the income elasticity of demand for wine is approximately five.What does this mean?

Suppose the cross-price elasticity of demand between grapefruit juice and orange juice is approximately 6.This means that________.

If the price elasticity of demand is unit-elastic, a 10 per cent increase in price will result in a 10 per cent increase in revenue.

For people who live near a bus route, a subway station, or a commuter rail line, public transportation provides a substitute to driving their own cars.So, for these people, the cross-price elasticity of demand between petrol and public transportation is:

How is cross-price elasticity of demand calculated?

When Audrina raised the price of her homemade cookies, her total revenue increased.This suggests that the demand for Audrina's cookies is elastic.

If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is:

What is income elasticity if an 8 per cent increase in income leads to a 4 per cent increase in quantity demanded for organic produce?

If a firm is in an antitrust court case being accused of monopolising a product, what would the firm hire an economist to show?

Suppose the absolute value of the price elasticity of demand for basketball game tickets on your campus is greater than 1.Increasing ticket prices will increase the total revenue from ticket sales.

If demand for a product is perfectly inelastic, a change in price will not change total revenue.

Explain the relationship between price elasticity of demand and total revenue. __________________________________________________________________________________________________________________________________________________________________________________________

Linesha, a university student working part-time, receives a wage increase.An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs.Based on this information,