Question 1

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated.

Accepted Answer

A cross-price elasticity of demand of zero indicates that the two goods are unrelated, meaning a change in the price of one will not have any effect on the demand for the other.

Question 2

The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.

Accepted Answer

The answer of The absolute value of the price elasticity...

Question 3

The demand for most farm products is relatively inelastic. A drought that reduces the supply of farm products will also cause farm revenues to fall.

Accepted Answer

The answer of The demand for most farm products is...

Question 4

The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?
A) Farm revenues increase.
B) Farm revenues decrease.
C) Farm revenues remain constant because consumers will not increase their consumption of farm products by much.
D) Farm revenues could increase or decrease depending on the cost of this new equipment.

Accepted Answer

The answer of The demand for most farm products is...

Question 5

Barbara, the consummate hostess, proudly announced as she served dessert, 'A port is often the perfect end to a meal, sipped with a piece of my scrumptious chocolate cake.' Evidently, Barbara views
A) port and chocolate cake as luxury items.
B) port and chocolate cake as necessities.
C) port and chocolate cake as complementary goods.
D) port and chocolate cake as substitutes to other desserts.

Accepted Answer

Barbara views port and chocolate cake as complementary goods, as she suggests that they go well together and can enhance the overall enjoyment of the meal.

Question 6

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Accepted Answer

Dairy products and bread are considered basic necessities for most households, and people tend to continue buying them even if their prices increase. Additionally, changes in income levels do not tend to have a significant impact on demand for these items, as they are considered essential items that people prioritize in their spending. Therefore, demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Question 7

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that
A) beer and spirits are complements; spirits and wine are luxuries.
B) beer and spirits are normal goods; spirits and wine are luxuries.
C) beer and spirits are complements; spirits are substitutes.
D) beer and spirits are substitutes; spirits and wine are luxuries.

Accepted Answer

The answer of Economists have estimated that the cross-price elasticity...

Question 8

In the alcohol industry, both wine and spirits are considered to be substitutes for beer.

Accepted Answer

The answer of In the alcohol industry, both wine and...

Question 9

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

Accepted Answer

If the income elasticity for canned food is 0.8, it means that a 1% increase in income will result in a 0.8% increase in the quantity demanded of canned food. This indicates that canned food is a normal good, as the demand for it increases as income increases. If the income elasticity was negative, then it would indicate that canned food is an inferior good.

Question 10

Suppose a 4 per cent increase in income results in a 2 per cent decrease in the quantity demanded of a good. Calculate the income elasticity of demand for the good and determine what type of good it is.

Accepted Answer

The answer of Suppose a 4 per cent increase in...

Question 11

During an economic expansion, as consumer incomes rise, holding everything else constant,
A) the demand for most goods, except luxuries, will rise.
B) the demand for luxuries will rise while the demand for inferior goods will fall.
C) the demand for luxuries and inferior goods will rise.
D) the prices of luxuries will fall while the prices of inferior goods will rise.

Accepted Answer

The answer of During an economic expansion, as consumer incomes...

Question 12

Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21. This indicates that
A) wine and spirits are luxury goods.
B) wine is a luxury good and spirits are inferior goods.
C) wine and spirits are highly price elastic.
D) wine is a luxury good and spirits are necessities.

Accepted Answer

A high income elasticity of demand for a good indicates that the good is a luxury good, meaning that as income increases, consumers will increase their demand for that good at a rate that is greater than the increase in income. Both wine and spirits have income elasticity values greater than 1, indicating that they are both luxury goods. However, the higher income elasticity value for wine compared to spirits suggests that wine is a relatively more income elastic luxury good.

Question 13

Since 1950 there has been a substantial increase in wheat production. The increase in production has led to a decrease in the price of wheat because of which of the following factors?
A) The absolute value of the price elasticity of demand for wheat is less than 1, and the income elasticity of demand for wheat is greater than 1.
B) The absolute value of the price elasticity of demand for wheat is greater than 1, and wheat is a close substitute for other food products.
C) The absolute value of the price elasticity of demand for wheat is less than 1, and the income elasticity of demand for wheat is low.
D) The income elasticity of demand for wheat is high, and wheat is an inferior good.

Accepted Answer

The answer of Since 1950 there has been a substantial...

Question 14

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that
A) beer and wine are substitutes and wine is an inferior good.
B) beer and wine are complements and wine is a luxury good.
C) beer and wine are substitutes and wine is a luxury good.
D) beer and wine are complements and wine is an inferior good.

Accepted Answer

The answer of Economists estimated that the cross-price elasticity of...

Question 15

Most food products have low income and price elasticities of demand.

Accepted Answer

Most food products are considered necessities and have low income and price elasticities of demand. This means that changes in income and price will have little effect on the quantity demanded by consumers.

Question 16

In recent years, the prices of new domestically produced cars have been falling. Suppose consumers respond by reducing their demand for used cars and mass transport services such as bus travel. This information suggests that the cross-price elasticity between new cars and used cars, and the cross-price elasticity between new cars and bus travel are negative.

Accepted Answer

The answer of In recent years, the prices of new...

Question 17

Explain the concepts of cross-price elasticity of demand and income elasticity of demand. What do positive and negative values indicate for each of these demand elasticities ?

Accepted Answer

The answer of Explain the concepts of cross-price elasticity of...

Question 18

Assume that the price elasticity of demand for petrol is -0.06. If the government tax causes the price of petrol to increase by 50 per cent, what will be the decrease in the quantity of petrol demanded?
A) 0.5 per cent
B) 3.0 per cent
C) 8.33 per cent
D) 50 per cent

Accepted Answer

The decrease in the quantity of petrol demanded can be calculated using the price elasticity of demand formula: Percentage Change in Quantity Demanded = Price Elasticity of Demand * Percentage Change in Price. Here, it's -0.06 * 50% = -3%. This means the quantity demanded will decrease by 3%.

Question 19

What factors would make you more sensitive or less sensitive to price when purchasing petrol?

Accepted Answer

The answer of What factors would make you more sensitive...

Question 20

Assume that a 50 per cent petrol tax led to a large increase in its price and only a small decrease in the quantity of petrol demanded. Economic analysis would lead one to conclude that
A) petrol should be taxed because the benefits of the tax would exceed the costs.
B) petrol should not be taxed because the benefits are uncertain.
C) petrol should not be taxed on ethical grounds since ethical benefits and costs can't be measured.
D) the benefits of taxing petrol is a normative issue. Economic analysis can be used to contribute to discussion of this issue but cannot decide it.

Accepted Answer

Economic analysis can provide insights into the effects of a petrol tax, such as changes in price and demand, but whether the benefits outweigh the costs involves value judgments and ethical considerations, making it a normative issue.

Quiz 4: Elasticity: The Responsiveness of Demand and Supply

If the cross-price elasticity of demand for goods A and B is zero, this means the two goods are unrelated.

The absolute value of the price elasticity of demand for telescopes is 1.5. Therefore, telescopes can be classified as a luxury.

The demand for most farm products is relatively inelastic. A drought that reduces the supply of farm products will also cause farm revenues to fall.

The demand for most farm products is relatively inelastic. All else constant, what is the effect on farm revenues as a result of the introduction of new and better farm equipment which increases productivity?

Barbara, the consummate hostess, proudly announced as she served dessert, 'A port is often the perfect end to a meal, sipped with a piece of my scrumptious chocolate cake.' Evidently, Barbara views

Demand for staples such as dairy products and bread is likely to be both income and price inelastic.

Economists have estimated that the cross-price elasticity of demand between beer and spirits is -0.50, the income elasticity for spirits is 1.21 and the income elasticity for wine is 5.03. These elasticities mean that

In the alcohol industry, both wine and spirits are considered to be substitutes for beer.

If the income elasticity for canned food is 0.8, then canned food is an inferior good.

Suppose a 4 per cent increase in income results in a 2 per cent decrease in the quantity demanded of a good. Calculate the income elasticity of demand for the good and determine what type of good it is.

During an economic expansion, as consumer incomes rise, holding everything else constant,

Studies show that the income elasticity of demand for wine is 5.03 and the income elasticity of demand for spirits is 1.21. This indicates that

Since 1950 there has been a substantial increase in wheat production. The increase in production has led to a decrease in the price of wheat because of which of the following factors?

Economists estimated that the cross-price elasticity of demand for beer and wine is -0.83 and the income elasticity of wine is 5.03. This means that

Most food products have low income and price elasticities of demand.

Explain the concepts of cross-price elasticity of demand and income elasticity of demand. What do positive and negative values indicate for each of these demand elasticities ?

Assume that the price elasticity of demand for petrol is -0.06. If the government tax causes the price of petrol to increase by 50 per cent, what will be the decrease in the quantity of petrol demanded?

What factors would make you more sensitive or less sensitive to price when purchasing petrol?

Assume that a 50 per cent petrol tax led to a large increase in its price and only a small decrease in the quantity of petrol demanded. Economic analysis would lead one to conclude that