Question 1

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 2

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 rise,holding...

Question 3

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

Accepted Answer

If the cross-price elasticity of demand for goods A and B is zero, it means that a change in the price of one good (A) does not affect the demand for the other good (B). This does not necessarily mean that the two goods are completely unrelated, as they may still have some level of complementarity or substitutability in consumption. However, it does indicate that their prices do not have a significant impact on each other's demand.

Question 4

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 5

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 6

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 domestically...

Question 7

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's statement suggests that she believes port and chocolate cake go well together and enhance each other's flavors, making them complementary goods.

Question 8

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

Accepted Answer

This is generally true for most basic food products as they are considered necessities and have limited substitutes, meaning that changes in price or income have a limited impact on consumer demand. However, some higher-end or luxury food products may have higher income and price elasticities of demand.

Question 9

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 10

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

Accepted Answer

Staples such as dairy products and bread are considered to be necessities and consumers will continue to buy them regardless of changes in income or price. Therefore, the demand for these products is likely to be both income and price inelastic.

Question 11

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 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

The income elasticity of demand for both wine and spirits is greater than 1, indicating that they are both luxury goods. However, the fact that the income elasticity for wine is higher than the income elasticity for spirits suggests that wine is a more luxury good than spirits.

Question 13

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 14

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

Accepted Answer

If the income elasticity for a good is positive, it is a normal good, and if it is negative, it is an inferior good. Since the income elasticity for canned food is positive (0.8), it is a normal good and not an inferior good.

Question 15

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 benefit 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 it should be taxed involves normative judgments about societal values and priorities.

Question 16

The demand for most farm products is relatively inelastic.All else held 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

When productivity increases due to better equipment, supply increases, leading to lower prices. Since demand is inelastic, the percentage drop in price leads to a smaller percentage increase in quantity demanded, resulting in decreased total revenue.

Question 17

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 18

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 spirits...

Question 19

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 20

Assume that the price elasticity of demand for petrol is -0.06.If a 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 price elasticity of demand formula is: % change in quantity demanded = elasticity * % change in price. Here, -0.06 * 50% = -3%, indicating a 3% decrease in quantity demanded.

Quiz 4: Market Efficiency and Market Failure

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,

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

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

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

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

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

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

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

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?

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

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

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

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

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

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.

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

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?

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