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45) Many manufactured goods have an ________ supply if production plans have only a short
period to change and as time passes and all production adjustments are made, the supply of the
good ________ from the initial response.
A) inelastic; increases
B) elastic; decreases
C) elastic; increases
D) inelastic; decreases
E) inelastic; does not change
46) The price elasticity of supply equals the percentage change in the
A) quantity demanded divided by the percentage change in the price of a substitute or
complement.
B) quantity supplied divided by the percentage change in price.
C) quantity demanded divided by the percentage change in price.
D) supply divided by the percentage change in the demand.
E) quantity supplied divided by the percentage change in the quantity demanded.
47) If a firm supplies 200 units at a price of $50 and 100 units at a price of $40, using the
midpoint method, what is the price elasticity of supply?
A) 0.33
B) 1.00
C) 3.00
D) 5.00
E) 8.50
48) If the quantity supplied increases by 8 percent when the price rises by 2 percent, the price
elasticity of supply is ________ .
A) 10.0
B) 6.0
C) 0.25
D) 16.0
E) 4.0
49) If the price of a a good increases by 10 percent and the quantity supplied increases by 5
percent, then the elasticity of supply is
A) greater than one and supply is elastic.
B) negative and supply is inelastic.
C) less than one and supply is elastic.
D) less than one and supply is inelastic.
E) greater than one and supply is inelastic.
5.3 Cross Elasticity and Income Elasticity
1) The extent to which the demand for a good changes when the price of a substitute or
complement changes, other things remaining the same, is measured as the
A) income elasticity of demand.
B) cross elasticity of demand.
C) price elasticity of demand.
D) price elasticity of supply.
E) cross income elasticity of demand.
2) The cross elasticity of demand is a measure of how
A) responsive consumers are to changes in the price of a product.
B) responsive suppliers are to changes in the price of a product.
C) demand for a product changes when the price of a substitute or complement changes.
D) total revenue changes when the price of a product changes.
E) demand for a product changes when income changes.
3) If we are trying to determine if two different products are substitutes, complements, or not
related at all, we should find the value of the
A) price elasticity of demand for both goods.
B) price elasticity of supply for both goods.
C) income elasticity of demand for both goods.
D) cross elasticity of demand.
E) price elasticity of demand and the price elasticity of supply for both goods.
4) If Microsoft wanted to prove to the Justice Department that its Windows software has many
substitutes that personal computer owners can use, Microsoft hopes to find
A) that the demand for Windows' is inelastic.
B) that the demand for Windows is elastic.
C) a large positive value for the cross elasticity of Windows and other software.
D) a negative income elasticity for Windows.
E) a positive income elasticity for Windows.
5) What is the formula for the cross elasticity of demand? The percentage change in the
A) quantity demanded divided by the percentage change in the price of a substitute or
complement.
B) quantity supplied divided by the percentage change in price.
C) quantity demanded divided by the percentage change in price.
D) quantity demanded divided by the percentage change in income.
E) equilibrium quantity demanded divided by the equilibrium quantity supplied.
6) If a 1 percent increase in the price of X increases the quantity demanded of Y by 2 percent,
then X and Y are
A) complements and the cross elasticity of demand equals 2.
B) substitutes and the cross elasticity of demand equals 1/2.
C) substitutes and the cross elasticity of demand equals 2.
D) complements and the income elasticity of demand equals 2.
E) normal goods and the income elasticity of demand of each equals 2.
7) The price of coffee rose 40 percent and the quantity of coffee demanded fell by 20 percent.
The quantity of doughnuts demanded also fell by 20 percent. From this information, we can
conclude that
A) the demand for coffee is elastic.
B) the demand for coffee is unit elastic.
C) coffee is an inferior good.
D) the cross elasticity demand between coffee and doughnuts is -0.5.
E) the income elasticity of demand for coffee is 2.
8) If the price of a movie rises 3 percent and, as a result, the quantity demanded of video rentals
increases 6 percent, then the cross elasticity of demand is
A) 2.
B) 1/2.
C) -1/2.
D) -2.
E) 9.
9) Based on data in the table above, use the midpoint method to determine the cross elasticity of
demand for ice cream and cake.
A) the cross elasticity is -0.75
B) the cross elasticity is -1.75
C) the cross elasticity is -0.83
D) the cross elasticity is -4.0
E) the cross elasticity is -1.33
10) Based on the data in the table above, ice cream and cake are ________ goods.
A) inferior
B) normal
C) substitute
D) complementary
E) Both answers B and D are correct.
11) Goods are ________ when the income elasticity of demand is positive.
A) complements
B) elastic
C) inferior
D) substitutes
E) normal
12) If the price of a Brita water filtration system increases and the quantity demanded of bottled
water increases, then these two goods are
A) substitutes.
B) complements.
C) normal goods.
D) inferior goods.
E) inelastic goods.
13) The cross elasticity of demand for butter and margarine is likely to be
A) positive because they are substitutes.
B) positive because they are complements.
C) negative because they are substitutes.
D) negative because they are complements.
E) positive because they are normal goods.
14) Which of the following is correct?
A) The cross elasticity of demand for substitute goods is positive.
B) The cross elasticity of demand for substitute goods is negative.
C) The cross elasticity of demand equals the percentage change in demand divided by the
percentage change in income.
D) The income elasticity of demand for a normal good is negative.
E) The cross elasticity of demand for normal goods is positive.
15) Patrick lives near two gas stations, Exxon and Shell. If Exxon decreases the price of gas, we
predict that the quantity of gasoline demanded at Shell will
A) decrease because Exxon and Shell gas are complements.
B) decrease because Exxon and Shell gas are substitutes.
C) increase because Exxon and Shell gas are substitutes.
D) increase because Exxon and Shell gas are complements.
E) not change Exxon and Shell are different brands of gasoline.
16) If an increase in the price of green ketchup increases the demand for red ketchup, then
A) red and green ketchup are substitutes.
B) red and green ketchup are normal goods.
C) the cross elasticity of demand for these two kinds of ketchup is positive.
D) Both answers A and C are correct.
E) Both answers A and B are correct.
17) If a lower price for a Pepsi decreases the demand for a Coke, the cross elasticity value for
Pepsi and Coke is
A) definitely negative.
B) definitely equal to zero.
C) definitely positive.
D) definitely greater than one.
E) possibly negative, positive, or zero, but there is not enough information to decide.
18) If the cross elasticity of demand between Coke and Pepsi is 2.02, then Coke and Pepsi are
A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
E) Both answers B and C are correct.
19) If Pepsi goes on sale and decreases its price by 10 percent, and as a result, the quantity
demanded of Coca Cola decreases by 5 percent, then Pepsi and Coke are ________ goods.
A) inferior
B) normal
C) substitute
D) complementary
E) unrelated
20) Tacos and pizza are substitutes. If a 2 percent change in the price of a taco leads to a 4
percent change in the demand for pizza, the cross elasticity of demand equals
A) -1/2.
B) 1/2.
C) 2.
D) -2.
E) 4.
21) Pete feeds his dog 100 percent more Pup-Peronis when Zuke’s treats increase in price by 50
percent. For Pete, Pup-Peronis and Zukes are ________ and the cross-price elasticity of demand
is ________.
A) complements; -1/2
B) substitutes; 2
C) substitutes; -2
D) complements; 2
E) substitutes; 1/2
22) The cross elasticity between computers and software is
A) negative because they are substitutes.
B) positive because they are substitutes.
C) negative because they are complements.
D) positive because they are complements.
E) positive because they are normal goods.
23) If you know the cross-price elasticity between two goods is negative, then you know the
goods are
A) substitutes.
B) normal goods.
C) complements.
D) inferior goods.
E) inelastic goods.
24) If the price of a one good increases and the quantity demanded of a different good decreases,
then these two goods are
A) substitutes.
B) normal goods.
C) inferior goods.
D) inelastic goods.
E) complements.
25) If the cross elasticity of demand is negative, that means the goods
A) have elastic demands.
B) have inelastic demands.
C) are complements.
D) are substitutes.
E) are inferior.
26) When two goods are related such that an increase in the price of one good decreases the
quantity demanded of the other good, these goods are definitely
A) normal goods.
B) luxury goods.
C) complements.
D) substitutes.
E) inferior goods.
27) If a lower price for good X increases the demand for good Y, the cross elasticity value for the
two goods is
A) negative.
B) equal to zero.
C) positive and less than one.
D) positive and greater than one.
E) possibly negative, positive, or zero, but there is not enough information to decide.
28) If two goods are ________, then an increase in the price of one leads to ________ in the
quantity demanded of the other.
A) complements; a decrease
B) complements; no change
C) substitutes; a decrease
D) substitutes; no change
E) normal; an increase
29) The cross elasticity of demand for blank DVDs and DVD burners is likely to be
A) positive because they are substitutes.
B) positive because they are complements.
C) negative because they are substitutes.
D) negative because they are complements.
E) negative because with the advent of digital cameras, film and film cameras are inferior goods.
30) If the cross elasticity of demand between car insurance and new cars is -0.41, then car
insurance and new cars are
A) complements.
B) substitutes.
C) normal goods.
D) inferior goods.
E) unrelated goods.
31) If the cross elasticity of demand for DVD players and DVDs equals -2, then the products are
A) unrelated.
B) complements.
C) inferior goods.
D) substitutes.
E) normal goods.
32) Tennis balls and tennis rackets are complements. If a 3 percent change in the price of a tennis
racket leads to a 9 change in the quantity of tennis balls demanded, the cross elasticity of demand
equals
A) 3.
B) -3.
C) 1/3.
D) -1/3.
E) 9.
33) The income elasticity of demand is a measure of
A) how demand for a product changes when the price of a substitute or complement product
changes.
B) how responsive consumers are to changes in the price of a product.
C) how responsive suppliers are to changes in the price of a product.
D) the extent to which the demand for a good changes when income changes.
E) the extent to which the supply of a good changes when the demand changes as a result of a
change in income.
34) If the income elasticity of demand for a good is 2, then when income rises 10 percent, the
quantity demanded
A) increases 2 percent.
B) increases 20 percent.
C) decreases 2 percent.
D) decreases 20 percent.
E) increases 12 percent.
35) The income elasticity of demand is
A) positive for a normal good.
B) zero for an inferior good.
C) less than one for an income elastic normal good.
D) Only answers A and B are correct.
E) Answers A, B, and C are correct.
36) The income elasticity of demand is ________ if the good is ________ good.
A) positive; a normal
B) positive; an inferior
C) negative; a normal
D) less than one; an inferior
E) positive; a substitute
37) Assume that it is predicted that for the years after you graduate from college, the entire
economy will experience a long period of prosperity when incomes grow rapidly. What type of
industry would be the best for you to find employment if this prediction is correct? An industry
that produces a product that is
A) income elastic.
B) income inelastic.
C) inferior.
D) a substitute good.
E) none of these industries
38) Which of the following statements is correct? The
A) income elasticity of demand for inferior goods is positive.
B) cross elasticity of demand for substitutes is negative.
C) income elasticity of demand for normal goods is positive.
D) cross elasticity of demand for complements is positive.
E) income elasticity of demand for inferior goods is zero.
39) The income elasticity of demand for skiing trips to Vermont is greater than one. Thus a trip
to Vermont for skiing is ________ good.
A) a normal
B) an inferior
C) a unit elastic
D) a price elastic
E) a price inelastic
40) People eat at restaurants less often when their incomes fall because of the recession . Eating
at restaurants must be
A) an inferior good.
B) a normal good.
C) a complement to other goods.
D) a substitute for other goods.
E) an inelastic good.
41) People take fewer trips by airplane when their incomes fall because of the recession. Trips
by airplane must be
A) a normal good.
B) an inferior good.
C) a substitute for other goods.
D) a complement to other goods.
E) an inelastic good.
42) Sergio’s rentals of Blu-ray movies increase by 10 percent when her income increases by 30
percent. Based on this information, we know that for Sergio Blu-ray movies
A) are complements.
B) are substitutes.
C) are inferior goods.
D) have an inelastic demand.
E) are normal goods.
43) Alan purchases 10 percent fewer bags of chips when his income decreases by 5 percent.
Based on only this information, we know that for Alan
A) chips are a normal good.
B) chips are a complement to salsa.
C) chips are a substitute to pretzels.
D) chips are an inferior good.
E) the price of chips fell.
44) For a good such as food, the income elasticity is likely
A) negative.
B) equal to zero.
C) positive and less than one.
D) positive and greater than one.
E) undefined because people always buy the same amount of food.
45) For a good such as a large screen, HD television set, the income elasticity would likely be
A) negative.
B) equal to zero.
C) positive and less than one.
D) positive and greater than one.
E) undefined because large screen, HD TVs are bought by only a handful of consumers.
46) Generally speaking, luxuries have income elasticities that are
A) larger than those of necessities.
B) smaller than those of necessities.
C) the same as those of necessities.
D) negative.
E) zero.
47) Assume that it is predicted that for the years after you graduate from college, the entire
economy will experience a long period of recession when incomes decrease. What type of
industry would be the best for you to find employment if this prediction is correct? An industry
that produces a product that
A) is income elastic.
B) is income inelastic.
C) is inferior.
D) is a complement.
E) none of these industries
48) What is an inferior good?
A) a product of low quality that we do not want to purchase
B) a product for which demand increases when income increases, and demand decreases when
income decreases
C) a product for which demand increases when income decreases, and demand decreases when
income increases
D) a product that is complementary
E) a product that is a substitute for another, better good
49) A product that has a negative income elasticity of demand is ________ good.
A) a complementary
B) a substitute
C) a normal
D) an inferior
E) a negative
50) Goods are ________ when the income elasticity of demand is less than zero.
A) substitutes
B) complements
C) inferior
D) elastic
E) normal
51) If a product is an inferior good, then its income elasticity of demand is
A) zero.
B) positive.
C) negative.
D) indeterminate.
E) undefined.
52) If a good is inferior, then it has an income elasticity of demand that is
A) equal to zero.
B) greater than zero.
C) less than zero.
D) greater than one.
E) undefined.
53) If a 5 percent increase in income brings about a 10 percent decrease in the demand for a
good, then the
A) good is a normal good.
B) good is an inferior good.
C) income elasticity of demand is 0.5.
D) income elasticity of demand is 2.0.
E) income elasticity of demand is 5.0.
54) If a 10 percent increase in income leads to a 5 percent decrease in the demand for a good, the
income elasticity of demand equals ________ and the good is ________ good.
A) 1/2; a normal
B) -1/2; an inferior
C) 2; a normal
D) -2; a normal
E) -5; an inferior
55) Joe receives a 20 percent increase in his income from his part time job and as a consequence
decreases his consumption of Ramen noodles by 10 percent. Hence to Joe, Ramen noodles are
A) a normal good with a price elasticity of demand of 0.5.
B) a substitute good with a cross elasticity of 0.5.
C) a good with a price elasticity of supply of -0.5.
D) an inferior good with an income elasticity of -0.5.
E) an inferior good with an income elasticity of -2.0.
