47. 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.
48. 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.
49. 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.
50. 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.
51. 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.
52. 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
53. 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.
54. 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.
55. 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.
56. 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.
57. 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.
58. 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
59. 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
60. 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
61. 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.
62. 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.
63. 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.
64. 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.
65. 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.
66. 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.
67. 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.
68. 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.
69. 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.
70. 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.
71. 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.
72. 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.
73. 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.
Multiple Choice – Section 02: The Elasticity of Supply
1. The price elasticity of supply measures how much
a. the quantity supplied responds to changes in input prices.
b. the quantity supplied responds to changes in the price of the good.
c. the price of the good responds to changes in supply.
d. sellers respond to changes in technology.
2. The price elasticity of supply measures how responsive
a. sellers are to a change in price.
b. sellers are to a change in buyers’ income.
c. buyers are to a change in production costs.
d. equilibrium price is to a change in supply.
3. The price elasticity of supply measures how responsive
a. equilibrium price is to equilibrium quantity.
b. sellers are to a change in buyers’ income.
c. sellers are to a change in price.
d. consumers are to the number of substitutes.
4. If the quantity supplied responds only slightly to changes in price, then
a. supply is said to be elastic.
b. supply is said to be inelastic.
c. an increase in price will not shift the supply curve very much.
d. even a large decrease in demand will change the equilibrium price only slightly.
5. A linear, upward–sloping supply curve has
a. a constant slope and a changing price elasticity of supply.
b. a changing slope and a constant price elasticity of supply.
c. both a constant slope and a constant price elasticity of supply.
d. both a changing slope and a changing price elasticity of supply.
6. A key determinant of the price elasticity of supply is the time period under consideration. Which of
the following statements best explains this fact?
a. Supply curves are steeper over long periods of time than over short periods of time.
b. Buyers of goods tend to be more responsive to price changes over long periods of time than over
short periods of time.
c. The number of firms in a market tends to be more variable over long periods of time than over
short periods of time.
d. Firms prefer to change their prices in the short run rather than in the long run.
7. A key determinant of the price elasticity of supply is the
a. time horizon.
b. income of consumers.
c. price elasticity of demand.
d. importance of the good in a consumer’s budget.
8. A key determinant of the price elasticity of supply is the
a. number of close substitutes for the good in question.
b. extent to which buyers alter their quantities demanded in response to changes in prices.
c. length of the time period.
d. extent to which buyers alter their quantities demanded in response to changes in their incomes.
9. A key determinant of the price elasticity of supply is
a. the ability of sellers to change the price of the good they produce.
b. the ability of sellers to change the amount of the good they produce.
c. how responsive buyers are to changes in sellers’ prices.
d. the slope of the demand curve.
10. If the price elasticity of supply for wheat is less than 1, then the supply of wheat is
a. inelastic.
b. elastic.
c. unit elastic.
d. quite sensitive to changes in income.
11. The supply of a good will be more elastic, the
a. more the good is considered a luxury.
b. broader is the definition of the market for the good.
c. larger the number of close substitutes for the good.
d. longer the time period being considered.
12. Frequently, in the short run, the quantity supplied of a good is
a. impossible, or nearly impossible, to measure.
b. not very responsive to price changes.
c. determined by the quantity demanded of the good.
d. determined by psychological forces and other non-economic forces.
13. In the long run, the quantity supplied of most goods
a. will increase in almost all cases, regardless of what happens to price.
b. cannot respond at all to a change in price.
c. can respond to a change in price, but the change is almost always inconsequential.
d. can respond substantially to a change in price.