6-154
Topic: Cross Elasticity and Income Elasticity of Demand
306.
A consumer‘s weekly income is $300, and the consumer buys 5 bars of chocolate per
week. When income increases to $330, the consumer buys 6 bars per week. The income
elasticity of demand for chocolate by this consumer is about
307.
Which of these pairs of concepts can be positively, as well as negatively, related?
308.
The relationship between a consumer‘s monthly income and monthly consumption of
four products, A–D, is shown below.
Quantity Consumed
Income
A
B
C
D
$4,000
45
90
20
0
5,000
60
180
10
15
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Which product listed is an example of an inferior good?
309. For which product is the income elasticity of demand most likely to be negative?
310.
Product
% Change in Income
W
-1
X
+6
Y
-1
Z
+4
6-156
Refer to the above table. Which product would be an inferior good?
311.
Product
% Change in Income
W
-1
X
+6
Y
-1
Z
+4
Refer to the above table. Which product is most responsive to a change in income?
312.
6-157
Product
% Change in Income
W
-1
X
+6
Y
-1
Z
+4
Refer to the above table. Which product is a normal good but least responsive to a change in
income?
A. Product W
313.
The income elasticity of demand for jewelry is +2. Other things equal, a 10 percent
increase in consumer income will
A.
decrease the quantity of jewelry purchased by 20 percent.
B.
increase the quantity of jewelry purchased by 5 percent.
True / False Questions
314.
If the percentage change in quantity demanded is less than the percentage change in
price, then demand is said to be elastic.
315.
A good with a price-elasticity coefficient of 0.75 has a demand that is price-inelastic.
316.
If the quantity demanded for good A increases from 40 to 60 when price decreases
from $9 to $7, price elasticity of demand in this price range is 1.6.
317.
In the price range where demand is elastic, if the seller of the good raises its price, then
total revenues will increase.
6-159
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written consent of McGraw-Hill Education.
Accessibil it y:
Keyboard Navigation
Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 06–02 Explain the usefulness of the total-revenue test for price
elasticity of demand.
Test Bank: II
Topic: The Total-Revenue Test
318.
If the price-elasticity coefficient for a product is 0.68 and the seller wants to raise
revenues by changing its price, then the seller should cut the price of the product.
319.
Whenever a product is put on special sale at a discounted price, total revenue from the
product increases. This indicates that the coefficient of elasticity for the product is greater
than 1.
320.
When demand is price-elastic, an increase in price will lead to increased total
consumer spending for the product.
6-160
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written consent of McGraw-Hill Education.
Blooms: Understand
Di f f i cu l t y :
02 Medium
Learning Objective: 06–02 Explain the usefulness of the total-revenue test for price
elasticity of demand.
Test Bank: II
Topic: The Total-Revenue Test
321.
Price elasticity of demand tends to be low for goods with few close substitutes.
322.
A product that is successfully advertised and has loyal buyers would have a low price-
elasticity coefficient.
323.
Given that the demand for grains is price-inelastic, we would expect that if the harvest
of grains increases significantly, other factors constant, then grain farmers‘ total revenues
would increase.
6-161
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written consent of McGraw-Hill Education.
Learning Objective: 06–03 List the factors that affect price elasticity of demand and
describe some applications of price elasticity of demand.
Test Bank: II
Topic: Determinants of Price Elasticity of Demand
324.
A state government seeking to increase its excise-tax revenues is more likely to
increase the tax rate on items with elastic demand.
325.
The demand for cocaine among addicts is relatively elastic.
326.
The law of supply indicates that the price-elasticity of supply coefficient would have a
negative sign.
6-162
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written consent of McGraw-Hill Education.
Topic: Price Elasticity of Supply
327.
The price elasticity of supply determines how much price would change as a result of a
change in demand.
328.
Over a longer time period after a price change, the price elasticity of supply tends to
decrease.
329.
If changes in demand cause significant changes in equilibrium price, then supply must
be quite inelastic.
330.
The supply of antiques is highly inelastic.Thus,increases in demand would have a small
effect on price.
6-163
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written consent of McGraw-Hill Education.
FALSE
331.
The supply of tickets to a major sporting event held in an enclosed stadium, such as the
Super Bowl or a World Series game, is perfectly inelastic.
332.
A positive cross-elasticity of demand between two goods indicates that the two goods
are both normal goods.
333.
A normal good would have a positive price-elasticity of demand.
6-164
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written consent of McGraw-Hill Education.
Di f f i c u l t y :
03 Hard
Learning Objective: 06–05 Apply cross elasticity of demand and income elasticity of
demand.
Test Bank: II
Topic: Cross Elasticity and Income Elasticity of Demand
334.
You notice that whenever incomes rise by 5 percent, people buy 3 percent more of
335.
We would expect the cross-elasticity of demand between popcorn and potato chips to
be negative.
336.
We would expect the income elasticity of demand for steak to be positive, and that for
hamburger to be negative.
6-165
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written consent of McGraw-Hill Education.
Topic: Cross Elasticity and Income Elasticity of Demand