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292. Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The
income elasticity of demand for the good is
a.
negative, and the good is an inferior good.
b.
negative, and the good is a normal good.
c.
positive, and the good is an inferior good.
d.
positive, and the good is a normal good.
293. Heath’s income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10
percent, he will purchase tickets for
a.
2 percent more concerts.
b.
5 percent more concerts.
c.
10 percent more concerts.
d.
20 percent more concerts.
294. When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds
to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather,
macaroni
a.
and soy-burgers are both normal goods with income elasticities equal to 1.
b.
is an inferior good and soy-burgers are normal goods; both have income elasticities of 1.
c.
is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity
of 1.
d.
and soy-burgers are both inferior goods with income elasticities equal to -1.
295. Food and clothing tend to have
a.
small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant
quantities of these goods.
b.
small income elasticities because consumers buy proportionately more of both goods at higher income levels
than they buy at low income levels.
c.
large income elasticities because they are necessities.
d.
large income elasticities because they are relatively inexpensive.
296. Charles purchases 20 basketball tickets per year when his annual income is $50,000 and 25 basketball tickets when
his annual income is $60,000. Charles’s income elasticity of demand for basketball ticket is
a.
0.82, and basketball tickets are a normal good.
b.
0.82, and basketball tickets are an inferior good.
c.
1.22, and basketball tickets are a normal good.
d.
1.22, and basketball tickets are an inferior good.
297. Tyler purchases 5 pounds of hot dogs per month when his monthly income is $2,000 and 4 pounds of hot dogs per
month when his monthly income is $2,200. Tyler’s income elasticity of demand for hot dogs is
a.
2.33, and hot dogs are a normal good.
b.
-2.33, and hot dogs are an inferior good.
c.
0.43, and hot dogs are a normal good.
d.
-0.43, and hot dogs are an inferior good.
298. Cross-price elasticity of demand measures how
a.
the price of one good changes in response to a change in the price of another good.
b.
the quantity demanded of one good changes in response to a change in the quantity demanded of another good.
c.
the quantity demanded of one good changes in response to a change in the price of another good.
d.
strongly normal or inferior a good is.
299. The cross-price elasticity of demand can tell us whether goods are
a.
normal or inferior.
b.
elastic or inelastic.
c.
luxuries or necessities.
d.
complements or substitutes.
300. Which of the following expressions represents a cross-price elasticity of demand?
a.
percentage change in quantity demanded of bread divided by percentage change in quantity supplied of bread
b.
percentage change in quantity demanded of bread divided by percentage change in price of butter
c.
percentage change in price of bread divided by percentage change in quantity demanded of bread
d.
percentage change in quantity demanded of bread divided by percentage change in income
301. If the cross-price elasticity of two goods is negative, then the two goods are
a.
necessities.
b.
complements.
c.
normal goods.
d.
inferior goods.
302. If the cross-price elasticity of two goods is positive, then the two goods are
a.
substitutes.
b.
complements.
c.
normal goods.
d.
inferior goods.
303. If two goods are substitutes, their cross-price elasticity will be
a.
positive.
b.
negative.
c.
zero.
d.
equal to the difference between the income elasticities of demand for the two goods.
304. If two goods are complements, their cross-price elasticity will be
a.
positive.
b.
negative.
c.
zero.
d.
equal to the difference between the income elasticities of demand for the two goods.
305. Suppose goods A and B are substitutes for each other. We would expect the cross-price elasticity between these two
goods to be
a.
positive.
b.
negative.
c.
either positive or negative. It depends whether A and B are normal goods or inferior goods.
d.
either positive or negative. It depends whether the current price level is on the elastic or inelastic portion of the
demand curve.
306. Which of the following could be the cross-price elasticity of demand for two goods that are complements?
a.
-1.3
b.
0
c.
0.2
d.
1.4
307. For which pairs of goods is the cross-price elasticity most likely to be positive?
a.
peanut butter and jelly
b.
bicycle frames and bicycle tires
c.
pens and pencils
d.
college textbooks and iPods
308. For which pairs of goods is the cross-price elasticity most likely to be negative?
a.
peanut butter and jelly
b.
automobile tires and coffee
c.
pens and pencils
d.
paperback novels and electronic books for e-readers
309. If the cross-price elasticity of demand for two goods is 1.25, then
a.
the two goods are luxuries.
b.
the two goods are substitutes.
c.
one of the goods is normal and the other good is inferior.
d.
the demand for one of the goods conforms to the law of demand, but the demand for the other good violates
the law of demand.
310. If the cross-price elasticity of demand for two goods is -4.5, then
a.
the two goods are substitutes.
b.
the two goods are complements.
c.
one of the goods is normal while the other good is inferior.
d.
one of the goods is a luxury while the other good is a necessity.
311. Suppose that when the price of good X increases from $800 to $850, the quantity demanded of good Y increases
from 65 to 70. Using the midpoint method, the cross price elasticity of demand is about
a.
-1.2, and X and Y are complements.
b.
-0.1, and X and Y are complements.
c.
0.1, and X and Y are substitutes.
d.
1.2, and X and Y are substitutes.
312. Last month, sellers of good Y took in $100 in total revenue on sales of 50 units of good Y. This month sellers of
good Y raised their price and took in $120 in total revenue on sales of 40 units of good Y. At the same time, the price of
good X stayed the same, but sales of good X increased from 20 units to 40 units. We can conclude that goods X and Y are
a.
substitutes, and have a cross-price elasticity of 0.60.
b.
complements, and have a cross-price elasticity of -0.60.
c.
substitutes, and have a cross-price elasticity of 1.67.
d.
complements, and have a cross-price elasticity of -1.67.
313. Suppose that when the price of good X falls from $10 to $8, the quantity demanded of good Y rises from 20 units to
25 units. Using the midpoint method, the cross-price elasticity of demand is
a.
-1.0, and X and Y are complements.
b.
-1.0, and X and Y are substitutes.
c.
1.0, and X and Y are complements.
d.
1.0, and X and Y are substitutes.
314. Suppose that when the price of good X falls from $6 to $4, the quantity demanded of good Y rises from 30 units to
40 units. Using the midpoint method, the cross-price elasticity of demand is
a.
-0.71, and X and Y are complements.
b.
-1.40, and X and Y are complements.
c.
-0.71, and X and Y are substitutes.
d.
-1.40, and X and Y are substitutes.
315. Suppose the cross-price elasticity of demand between hot dogs and mustard is -2.00. This implies that a 20 percent
increase in the price of hot dogs will cause the quantity of mustard purchased to
a.
fall by 200 percent.
b.
fall by 40 percent.
c.
rise by 200 percent.
d.
rise by 40 percent.
316. Suppose the cross-price elasticity of demand between peanut butter and jelly is -2.50. This implies that a 20 percent
increase in the price of peanut butter will cause the quantity of jelly purchased to
a.
fall by 8 percent.
b.
fall by 50 percent.
c.
rise by 8 percent.
d.
rise by 50 percent.
317. Maddy purchases 2 pounds of beans and 3 pounds of rice per month when the price of beans is $2 per pound. She
purchases 1 pounds of beans and 4 pounds of rice per month when the price of beans is $3 per pound. Maddy’s cross-price
elasticity of demand for beans and rice is
a.
0.71, and they are substitutes.
b.
-0.71, and they are complements.
c.
1.4, and they are substitutes.
d.
-1.4, and they are complements.
Scenario 5-1
Suppose that when the average college student’s income is $10,000 per year, the annual quantity demanded of Patty’s
Pizza is 50 and the annual quantity demanded of Sue’s Subs is 80. Suppose that when the price of Patty’s Pizza increases
from $8 to $10 per pie, the quantity demanded of Sue’s Subs increases from 80 to 100. Suppose also that when the
average student’s income increases to $12,000 per year, the annual quantity demanded of Patty’s Pizza increases from 50
to 60.
318. Refer to Scenario 5-1. What can you deduce about the type of good Patty’s Pizza is and about the relationship
between Patty’s Pizza and Sue’s Subs?
a.
Patty’s Pizza is a normal good and Patty’s Pizza and Sue’s Subs are substitutes.
b.
Patty’s Pizza is a normal good and Patty’s Pizza and Sue’s Subs are complements.
c.
Patty’s Pizza is an inferior good and Patty’s Pizza and Sue’s Subs are substitutes.
d.
Patty’s Pizza is an inferior good and Patty’s Pizza and Sue’s Subs are complements.
319. Refer to Scenario 5-1. Using the midpoint method, what is the income elasticity of demand for pizza and what does
the value indicate about the demand for pizza?
a.
The income elasticity is 0.18 so pizza is a normal good.
b.
The income elasticity is -1 so pizza is an inferior good.
c.
The income elasticity is 1 so pizza is unitary elastic.
d.
The income elasticity is 1 so pizza is a normal good.
320. Refer to Scenario 5-1. Using the midpoint method, the cross price elasticity of demand is
a.
about 0.22, and the two goods are substitutes.
b.
about -0.005, and the two goods are complements.
c.
1, and the two goods are substitutes.
d.
1, and the two goods are unitary elastic.
Scenario 5-2
Suppose the demand function for good X is given by: where is the quantity demanded of
good X, is the price of good X, and is the price of good Y, which is related to good X.
321. Refer to Scenario 5-2. Using the midpoint method, if the price of good X is constant at $10 and the price of good Y
decreases from $10 to $8, the cross price elasticity of demand is about
a.
0.57, and X and Y are substitutes.
b.
-0.22, and X and Y are complements.
c.
-0.80, and X and Y are complements.
d.
-2.57, and X and Y are complements.
322. The price elasticity of demand for bread is
a.
computed as the change in the price of bread divided by the change in the quantity demanded of bread.
b.
independent of the availability of close substitutes.
c.
influenced by whether consumers view bread as a necessity or luxury.
d.
All of the above are correct.
323. The demand for a good becomes more inelastic
a.
as more close substitutes for it become available.
b.
as it is increasingly viewed as a luxury good.
c.
as the market is defined more broadly.
d.
the longer the time horizon.
324. Which of the following statements is correct?
a.
The demand for medicine is more elastic than the demand for sailboats.
b.
The demand for iPads is more elastic than the demand for tablets in general.
c.
The demand for cell phones is more elastic over a short period of time than over a long period of time.
d.
All of the above are correct.
325. Which of the following is likely to have the most price elastic demand?
a.
milk
b.
sailboats
c.
good X in the short run compared to good X in the long run
d.
gasoline
326. Which of the following is likely to have the most price elastic demand?
a.
laptop computers
b.
tablets
c.
Microsoft® Surface tablets
d.
cell phones
327. Which of the following is likely to have the most price elastic demand?
a.
fountain ink pens
b.
milk
c.
disposable diapers
d.
shampoo
328. Suppose the price of apples decreases from $1.00 to $0.80 each and, as a result, the quantity of apples demanded
increases from 800 to 1,000. Using the midpoint method, the price elasticity of demand for apples in the given price range
is
a.
0.22.
b.
0.5.
c.
1.0.
d.
4.5.
329. You have just been hired as a business consultant to determine what pricing policy would be appropriate to increase
the total revenue of a therapeutic massage spa. The first step you would take would be to
a.
increase the price of all massages.
b.
reduce staff in order to reduce operating costs.
c.
determine the price elasticity of supply for massages.
d.
determine the price elasticity of demand for massages.
330. For which of the following goods is the income elasticity of demand likely highest?
a.
tennis lessons
b.
allergy medication
c.
clothing
d.
cell phone contracts
331. For which pairs of goods is the cross-price elasticity most likely to be positive?
a.
canoes and kayaks
b.
pizza and college textbooks
c.
Halloween candy and rain coats
d.
cats and cat food
332. For which pairs of goods is the cross-price elasticity most likely to be negative?
a.
peanut butter and jelly
b.
celery and coffee
c.
pens and pencils
d.
iPods and iPads
