31
5) The income elasticity of demand
A) measures the change in income necessary for a given change in quantity demanded.
B) measures the responsiveness of income to changes in quantity demanded.
C) measures the responsiveness of quantity demanded to changes in income.
D) is the ratio of the percentage change in income to the percentage change in quantity demanded.
Topic: Other Important Elasticities
Skill: Definition
Learning Outcome: Micro-6
6) If income increases by 10% and, in response, the quantity of housing demanded increases by 7%, then
the income elasticity of demand for housing is
A) –1.
B) –0.7.
C) 0.7.
D) 1.43.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
7) The income elasticity of demand for education is 3.5. Thus, a 4% increase in income will
A) decrease the quantity of education demanded by 3.5%.
B) decrease the quantity of education demanded by 14%.
C) increase the quantity of education demanded by 4%.
D) increase the quantity of education demanded by 14%.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
8) The income elasticity of demand for low–quality beef is –2. Thus, an 8% decrease in the quantity of low–
quality beef demanded
A) is the result of a decrease in income of 4%.
B) is the result of an increase in income of 0.25%.
C) is the result of an increase in income of 4%.
D) is unrelated to any change in income.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
32
9) The ABC Computer Company spends a lot of money for advertising designed to convince you that
their personal computers are superior to all other personal computers. If the ABC Company is successful,
the demand for ABC personal computers
A) and the demand for other firms’ personal computers will become less price elastic.
B) and the demand for other firms’ personal computers will become more price elastic.
C) will become more price elastic, but the demand for other firms’ personal computers will become less
price elastic.
D) will become less price elastic, but the demand for other firms’ personal computers will become more
price elastic.
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
10) Suppose a 10% increase in the price of steak reduces the consumption of steak by 30%. Such a price
rise will induce households to spend
A) less of their income on steak.
B) more of their income on steak.
C) the same amount on steak as before.
D) more on products that are complementary with steak.
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
11) Cross–price elasticity of demand measures the response in the
A) price of a good to a change in the quantity of another good demanded.
B) income of consumers to the change in the price of goods.
C) quantity of one good demanded when the quantity demanded of another good changes.
D) quantity of one good demanded to a change in the price of another good.
Topic: Other Important Elasticities
Skill: Definition
Learning Outcome: Micro-6
33
12) If the quantity of tea demanded increases by 2% when the price of coffee increases by 6%, the cross–
price elasticity of demand between tea and coffee is
A) –3.
B) 0.33.
C) 3.
D) 12.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
13) If the quantity of bagels demanded decreases by 8% when the price of croissants decreases by 16%,
the cross–price elasticity of demand between bagels and croissants is
A) 2.
B) 0.5.
C) –2.
D) –5.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
14) If the quantity of peanut butter demanded increases by 4% when the price of jelly decreases by 2%,
the cross–price elasticity of demand between peanut butter and jelly is
A) –4.
B) –2.
C) –0.5.
D) 2.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
15) If the cross–price elasticity of demand between fish and chicken is 2, then a 2% increase in the price of
fish will result in a ________ in the quantity of chicken demanded.
A) 1% increase
B) 4% increase
C) 10% increase
D) 20% decrease
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
34
16) The cross–price elasticity of demand between good X and good Y is –3. Given this information, which
of the following statements is true?
A) The demand for goods X and Y is elastic.
B) Goods X and Y are substitutes.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income elastic.
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
17) The cross–price elasticity of demand between good X and good Y is 0.5. Given this information, which
of the following statements is true?
A) The demand for goods X and Y is inelastic.
B) Goods X and Y are substitutes.
C) Goods X and Y are complements.
D) The demand for goods X and Y is income inelastic.
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
35
Refer to the information provided in Figure 5.5 below to answer the question(s) that follows.
Figure 5.5
18) Refer to Figure 5.5. As the price of good W increased, the demand for good Y shifted from D1 to D2.
The cross–price elasticity of demand between W and Y is
A) positive.
B) negative.
C) zero.
D) indeterminate from this information.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
19) Refer to Figure 5.5. As the price of good W decreased, the demand for good Y shifted from D1 to D2.
The cross–price elasticity of demand between W and Y is
A) positive.
B) negative.
C) zero.
D) indeterminate from this information.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
36
20) In output markets, the elasticity of supply tends to be
A) negative.
B) zero.
C) positive.
D) decreasing at an increasing rate.
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
21) If the elasticity of labor supply is positive, the labor–supply curve would be
A) horizontal.
B) vertical.
C) downward sloping.
D) upward sloping.
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
37
Refer to the information provided in Figure 5.6 below to answer the question(s) that follows.
Figure 5.6
22) Refer to Figure 5.6. The market is initially in equilibrium at Point A and supply shifts from S1 to S2.
Which of the following statements is true?
A) Price will still serve as a rationing device causing quantity supplied to exceed 12 thousand pizzas.
B) There is no need for price to serve as a rationing device in this case because the new equilibrium
quantity exceeds the original equilibrium quantity.
C) Price will still serve as a rationing device causing quantity demanded to fall from 12 to 10 thousand
pizzas.
D) The market cannot move to a new equilibrium until there is also a change in demand.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
23) Refer to Figure 5.6. The market is initially in equilibrium at the intersection of the demand curve and
supply curve S2. If supply shifts from S2 to S1, which of the following statements is true?
A) Price will still serve as a rationing device causing quantity supplied to exceed 12 pizzas.
B) There is no need for price to serve as a rationing device in this case because the new equilibrium
quantity is less than the original equilibrium quantity.
C) Price will still serve as a rationing device causing quantity demanded to rise from 10 to 12 pizzas.
D) The market cannot move to a new equilibrium unless demand shifts at the same time that supply
shifts.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-2
38
24) At a price of $4, quantity supplied is 100, and at a price of $6, quantity supplied is 120. Using the
midpoint formula, the price elasticity of supply is ________ and supply is ________.
A) 0.1; inelastic
B) 0.45; inelastic
C) 2.2; elastic
D) 10; elastic
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
25) A mass transit authority charges bus fares of $1.25 during morning rush hours but only $1.00 during
late morning non–rush hours. Economists explain the fare difference by the fact that the demand for bus
rides during the morning rush hours is ________, but during the late morning it is ________.
A) more elastic; more inelastic
B) perfectly elastic; perfectly inelastic
C) more inelastic; more elastic
D) unit elastic; relatively inelastic
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
26) The income elasticity of demand is calculated as the
A) percentage change in quantity demanded multiplied by the percentage change in income.
B) percentage change in income divided by the percentage change in quantity demanded.
C) percentage change in quantity demanded divided by the percentage change in income.
D) percentage change in income divided y the percentage change in price.
Topic: Other Important Elasticities
Skill: Definition
Learning Outcome: Micro-6
27) If income decreases by 20% and, in response, the quantity of housing demanded decreases by 14%,
then the income elasticity of demand for housing is
A) –1.
B) –0.7.
C) 0.7.
D) 1.43.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
39
28) The income elasticity of demand for education is 3.5. Thus, a 6% decrease in income will
A) decrease the quantity of education demanded by 3.5%.
B) decrease the quantity of education demanded by 21%.
C) increase the quantity of education demanded by 6%.
D) increase the quantity of education demanded by 21%.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
29) The income elasticity of demand for low–quality beef is –2. Thus, a 5% increase in the quantity of low–
quality beef demanded
A) is the result of a decrease in income of 2.5%.
B) is the result of a decrease in income of 10%.
C) is the result of an increase in income of 2.5%.
D) is unrelated to any change in income.
Topic: Other Important Elasticities
Skill: Analytical
AACSB: Analytical Thinking
Learning Outcome: Micro-6
30) If a decrease in income results in a decrease in the quantity demanded for a product, the product is
________, and the value of the income elasticity of demand is ________.
A) a normal good; positive
B) a normal good, negative
C) an inferior good; positive
D) an inferior good; negative
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
31) If an increase in income results in a decrease in the quantity demanded for a product, the product is
________, and the value of the income elasticity of demand is ________.
A) a normal good; positive
B) a normal good, negative
C) an inferior good; positive
D) an inferior good; negative
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
40
32) If a decrease in income results in an increase in the quantity demanded for a product, the product is
________, and the value of the income elasticity of demand is ________.
A) a normal good; positive
B) a normal good, negative
C) an inferior good; positive
D) an inferior good; negative
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
33) If an increase in income results in an increase in the quantity demanded for a product, the product is
________, and the value of the income elasticity of demand is ________.
A) a normal good; positive
B) a normal good, negative
C) an inferior good; positive
D) an inferior good; negative
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
34) Suppose a decrease of 7% in the price of lobster increases the consumption of lobster by 18%. Such a
price decrease will induce households to spend
A) less of their income on lobster.
B) more of their income on lobster.
C) the same amount on lobster as before.
D) less on products that are complementary with lobster.
Topic: Other Important Elasticities
Skill: Conceptual
AACSB: Reflective Thinking
Learning Outcome: Micro-6
35) If two products are complements, the ________ elasticity of demand is ________.
A) income; positive
B) income; negative
C) cross–price; positive
D) cross–price; negative
Topic: Other Important Elasticities
Skill: Definition
Learning Outcome: Micro-6