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Chapter 19 Demand and Supply Elasticity 61
45) In which of the following situations is the absolute price elasticity of demand for an item most
likely to exceed a value of 1?
A) when there are very few close substitutes for the item
B) when there are very few producers of the item
C) when the item s share of expenses in consumers budgets is very small
D) when there is considerable time to adjust to a change in the price of the item
46) Generally, expenses on toothpaste are a small part of a consumer s budget, so the demand for
toothpaste is more likely to be
A) elastic. B) inelastic.
C) unit elastic. D) perfectly elastic.
47) Which of the following is more likely to have perfectly elastic or nearly perfectly elastic
demand?
A) a textbook required for an economics course
B) the guitar produced by a master craftsman
C) milk produced by a Wisconsin dairy farmer
D) the services offered by the only allergist in the community
48) After full adjustment to a price change has occurred, the absolute price elasticity of demand for
an item is equal to 1. In the short run, the absolute price elasticity of demand for the item was
probably
A) less than 0. B) greater than 0. C) less than 1. D) greater than 1.
49) Generally
,
expenses on a sport utility vehicle are a large part of a consumer s budget, so the
demand for sport utility vehicles is more likely to be
A) elastic. B) inelastic.
C) unit elastic. D) perfectly elastic.
50) A product that has an elastic demand curve has all of the following characteristics EXCEPT
A) it has many substitutes.
B) a consumer can wait to buy the product.
C) it has few or no substitutes.
D) it is a large part of a consumer s income.
51) Why is elasticity of demand greater for goods that are a large share of a consumer s budget?
52) Which has a more elastic demand: hamburger or beef?
53) The price elasticity of demand for a particular good is smaller in the long run because
consumers adapt to higher prices over time. Do you agree or disagree? Explain.
Chapter 19 Demand and Supply Elasticity 63
19.5 Cross Price Elasticity of Demand
1) Suppose that the number of units of good X consumed falls 6 percent when the price of good Y
falls 4 percent. The cross price elasticity of demand between goods X and Y is
A) 0.66. B) 1.75. C) 2.0. D) 1.5.
2) Suppose that the cross price elasticity of demand between goods A and B equals 0.5. Which of
the following is TRUE?
A) A and B are complements because the cross price elasticity is less than one.
B) A and B are complements because the cross price elasticity is positive.
C) A and B are substitutes because the cross price elasticity is less than one.
D) A and B are substitutes because the cross price elasticity is positive.
3) Suppose that when the price of root beer rises 10%, the quantity of pizza demanded falls 20%.
This would mean that pizza and root beer are
A) substitutes, with a cross price elasticity of 0.5.
B) complements, with a cross price elasticity of 0.5.
C) substitutes, with a cross price elasticity of 2.0.
D) complements, with a cross price elasticity of 2.0.
4) Suppose that the amount of computer printers demanded increases by 20 percent when the
price of personal computers falls by 10 percent. The cross price elasticity of demand between
computer printers and personal computers is
A) 0.5. B) 2.0. C) 0.5. D) 2.0.
5) If goods X and Y are complements, then the cross price elasticity of demand will be
A) elastic. B) greater than zero but less than 1.
C) negative. D) positive.
6) When two goods are substitutes for each other, the cross price elasticity of demand
A) will be negative. B) will be zero.
C) may be either positive or negative. D) will be positive.
7) If the cross price elasticity of demand between Los Angeles Lakers professional basketball
tickets and Los Angeles Dodgers professional baseball tickets is positive, then the two goods are
A) substitutes. B) unrelated. C) complements. D) not related.
8) Suppose that the cross price elasticity of demand between bagels and cream cheese is 1.45. This
indicates that the two goods are
A) substitutes.
B) complements.
C)
b
oth inferior.
D) completely unrelated in the minds of consumers.
9) Suppose that when the price of good X changes, the quantity of good Y demanded remains the
same. The cross price elasticity of demand is
A) zero. B) positive.
C) negative. D) either positive or negative.
10) If the cross price elasticity of demand between two goods is negative, then the two goods are
A) substitutes. B) complements. C) unrelated. D) independent.
11) If the cross price elasticity of demand between two goods is positive, then the two goods are
A) substitutes. B) complements. C) independent. D) unrelated.
12) A positive cross price elasticity of demand between two goods suggests that the goods are
A) not related. B) complements.
C) substitutes. D)
b
oth of unitary elasticity.
13) If goods are completely unrelated, their cross price elasticity will
A)
b
e greater than one. B)
b
e less than one.
C)
b
e equal to zero. D)
b
e negative.
14) If personal computer prices rise by 1 percent, we would expect the number of color printers
purchased to
A) increase. B) decrease.
C)
b
e equal to ten. D)
b
e equal to one.
15) When the price of chicken is $2.00 per pound, consumers buy 50 pounds of hamburger. When
the price of chicken rises to $3.00 per pound, 60 pounds of hamburger are purchased. The cross
price elasticity of demand between chicken and hamburger is approximately equal to
A) 0.04. B) 0.45. C) 2.20. D) 0.45.
16) The cross price elasticity of demand is measured by the
A) percentage change in the quantity demanded of one good divided by the percentage
change in quantity demanded of another good.
B) percentage change in the price of one good divided by the percentage change in price of
another good.
C) percentage change in the demand for one good divided by the percentage change in price
of another good.
D) percentage change in the price of one good divided by the percentage change in the
demand for another good.
Month PXQXPYQYPZQZ
Jan $10 100 $20 50 $25 200
Feb 10 90 18 60 25 225
Mar 10 70 15 90 25 275
Apr 12 50 15 100 25 290
May 15 25 15 120 25 320
17) In the above table, the cross price elasticity of demand for good X with good Y when P Yfalls
from $20 to $18 is
A) 2. B) 0. C) 1. D) 1.
18) In the above table, the cross price elasticity of demand for good Y with good X when P Xrises
from $10 to $12 is
A) 0.29. B) 1.83. C) 0.58. D) 0.58.
19) In the above table, the cross price elasticity of demand for good Z with good Y when P Yrises
from $15 to $18 is
A) 2.20. B) 2.20. C) 1.10. D) 1.10.
20) In the above table, the cross price elasticity of demand (using averages) for Z with good X, when
PXincreases from $12 to $15, is approximately equal to
A) 1.03 B) 2.26. C) 0.44. D) 0.44.
21) When the price of a video rental was $2.00, ticket sales at the local movie theatre averaged 180
admissions per night. Then the video store reduced the price of a video rental to $1, and the
theatre manager reported that ticket sales had fallen to 126 per night. What is the approximate
value of the cross price elasticity of demand between video rentals and theatre tickets?
A) 0.53 B) 0.30 C) 0.53 D) 1.67
22) The cross elasticity of demand is
A) the percentage change in the demand divided by the percentage change in price of another
good.
B) the change in the price of one good divided by the change of quantity demanded of
another good.
C) the percentage change in the quantity demanded of one good divided by the percentage
change in the quantity demanded of another good.
D) the percentage change in the price of one good divided by the percentage change in the
price of another good.
23) The percentage change in the demand for one good divided by the percentage change in the
price of a related good is the
A) price elasticity of demand. B) price elasticity of supply.
C) cross price elasticity of demand. D) income elasticity.
24) When two goods are substitutes,
A) the demands for both goods will be inelastic.
B) cross price elasticity of demand will be 0.
C) cross price elasticity of demand will be negative.
D) cross price elasticity of demand will be positive.
25) When two goods are complements,
A) the demands for both goods will be elastic.
B) cross price elasticity of demand will be 0.
C) cross price elasticity of demand will be negative.
D) cross price elasticity of demand will be positive.
26) When two goods are unrelated,
A) the demands for both goods will be inelastic.
B) cross price elasticity of demand will be 0.
C) cross price elasticity of demand will be negative.
D) cross price elasticity of demand will be positive.
27) Robert must always have cream in his coffee. For Robert, the cross price elasticity of demand for
coffee and cream is
A) equal to 0.
B) negative.
C) positive.
D) impossible to determine without more information.
28)
J
ulie always purchases the soda with the lowest price. For Julie, the cross price elasticity of
demand for brand X and brand Y will be
A) equal to 0.
B) negative.
C) positive.
D) impossible to determine without more information.
Px Qx Py Qy Pz Qz
$10 100 $20 50 $25 200
10 90 18 60 25 225
10 70 15 90 25 275
12 50 15 100 25 290
15 25 15 120 25 320
29) Refer to the above table. Based on the information in the table, we can say that
A) all three goods are substitutes for each other.
B) all three goods are complements.
C) X and Y are substitutes, Y and Z are complements, and X and Z are substitutes.
D) X and Y are complements, Y and Z are substitutes, and X and Z are complements.
30) Refer to the above table. Suppose the price of Y rises from $18 to $20. What is the cross price
elasticity of demand between X and Y?
A) 2 B) 1 C) 0 D) 1
31) Refer to the above table. Suppose the price of Y rises from $18 to $20. What is the cross price
elasticity of demand between Y and Z?
A) 1.7273 B) 1.1176 C) 0.8947 D) 1.7273
32) Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price
elasticity of demand between X and Z?
A) 0.292 B) 7.06 C) 7.06 D) 0.292
33) Refer to the above table. Suppose the price of X increases from $10 to $12. What is the cross price
elasticity of demand between X and Y?
A) 1.833 B) 0.545 C) 0.579 D) 1.833
34) Refer to the above table. The price of Y decreases from $18 to $15. What is the cross price
elasticity of demand between Y and X?
A) 0.73 B) 1.0 C) 1.38 D) 1.83
35) A measure of the responsiveness of the demand for one good to the percentage change in the
price of another good is
A) price elasticity of demand. B) price elasticity of supply.
C) cross price elasticity of demand. D) income elasticity.
36) Suppose the price of X increases by 20 percent while the quantity demanded of Y does not
change. We would conclude that
A) the two goods are substitutes, but the cross elasticity of demand is not large.
B) the two goods are complements, but the cross elasticity of demand is not large.
C) the two goods are perfect substitutes.
D) the two goods are not related.
37) The cross price elasticity between X and Y is 1.8. We can conclude that
A) goods X and Y are substitutes. B) goods X and Y are complements.
C) goods X and Y are unrelated. D) perfect substitutes
38) The price of X falls by ten percent, and the quantity demanded of X increases by ten percent.
Meanwhile, the quantity demanded of Y increases by ten percent too. We would conclude that
A) demand for X is elastic, and X and Y are substitutes.
B) demand for X is elastic, and X and Y are complements.
C) demand for X is unit elastic, and X and Y are complements.
D) demand for X is inelastic, and X and Y are unrelated.
39) The cross price elasticity of demand between two goods is 50. We may conclude that
A) the two goods are very complementary and probably are sold together.
B) the two goods are poor substitutes for each other.
C) the demand for one of the goods is likely to be fairly elastic and the demand for the other
good is likely to be fairly inelastic.
D) the demand for each of the goods is likely to be very elastic.
40) The cross price elasticity of demand of products M and N is zero. This implies that M and
N are
A) substitute products.
B) complementary products.
C) independent products.
D) unique goods, as the price elasticity of demand for one of them is zero.
41) If the price of one good increases, and as a result the demand for another related good falls, the
goods are
A) substitutes. B) normal goods. C) complements. D) inferior goods.
42) Two items which have a positive cross price elasticity of demand are referred to as
A) luxury goods. B) inferior goods. C) substitutes. D) complements.
43) Two items which have a negative cross price elasticity of demand are referred to as
A) luxury goods. B) inferior goods. C) substitutes. D) complements.
44) If the value of the cross elasticity of demand is negative, the two goods are
A) complementary goods. B) substitute goods.
C) normal goods. D) inferior goods.
45) The cross price elasticity of demand is defined as
A) the percentage change in the supply for one good (a shift in the supply curve) divided by
the percentage change in price of a related good.
B) the percentage change in demand for two different commodities.
C) the percentage change in the demand for one good (a shift in the demand curve) divided
by the percentage change in price of a related good.
D) the percentage change in price for two different commodities.
46) If the price of one good increases, and as a result the demand for another good increases, the
goods are
A) substitutes. B) normal goods. C) complements. D) inferior goods.
47) If the cross price elasticity of demand between two commodities is positive, then these
commodities are
A) are superior. B) are complements.
C) are substitutes. D) are inferior.
48) If the price of apples went up
b
y 25 percent, which of the following values of the cross price
elasticity for oranges would be most reasonable to anticipate?
A) 0.0 B) 1.2 C) 2.5 D) 1.0
49) If the price of apples went up
b
y 25 percent, which of the following values of the cross price
elasticity for cars would be most reasonable to anticipate?
A) 0.0 B) 1.2 C) 2.5 D) 1.0
50) Use the above figure. Which graph depicts complementary goods?
A) A B) B C) C D) D
51) Use the above figure. Which graph depicts substitute goods?
A) A B) B C) C D) D
52) If the price of wireless phone service decreases and the demand for wired phone services
decreases, then wired and wireless phone services are
A) substitutes. B) complements. C) inferior goods. D) elastic goods.
53) What would you expect the cross price elasticity of iPods and online music downloads? Explain
your answer.
54) How does the cross elasticity of demand differ from the price elasticity of demand? How are
they related?
55) Why can cross price elasticity of demand be positive or negative, unlike the price elasticity of
demand with respect to the item s own price?
19.6 Income Elasticity of Demand
1) Income elasticity relates to
A) a movement down a demand curve.
B) a movement up a demand curve.
C) a horizontal shift in a demand curve.
D) the percentage change in quantity demanded divided by the percentage change in the
price.
2) Suppose that the income elasticity of demand for peanut butter is 0.75. Which of the following
is true?
A) Peanut butter is a normal good, because income elasticity is positive.
B) Peanut butter is an inferior good, because income elasticity is positive.
C) Peanut butter is a normal good, because income elasticity is less than 1.
D) Peanut butter is an inferior good, because income elasticity is less than 1.
3) Income elasticity of demand is defined as
A) the change in quantity demanded divided by the change in income.
B) the change in quantity demanded divided by the change in market price.
C) the percentage change in income divided by the percentage change in quantity demanded.
D) the percentage change in demand divided by the percentage change in income.
4) If one s demand for peanut butter decreases as income rises, the income elasticity of demand for
the product is
A) elastic. B) inelastic. C) unit elastic. D) negative.
5) If an individual s income rises 40 percent and his clothing purchases increase 50 percent in
response, the income elasticity for clothing by the individual is
A) 0.8. B) 0.8. C) 1.25. D) 1.25.
6) Which of the following goods is likely to have the highest income elasticity?
A) A designer blouse B) Tomato soup
C) Hamburger D) Can of tuna
7) Income elasticity of demand is defined as
A) the change in income divided by the change in quantity.
B) the change in price divided by the change in income.
C) the percentage change in demand divided by the percentage change in income.
D) the change in income multiplied by the change in quantity.
8) If demand for Rolls Royce automobiles rises in an area where incomes have increased, this tells
us that a Rolls Royce is
A) a normal good. B) an inferior good.
C) a complementary good. D) a substitute good.
9) When Fred s income was $100 per week, 10 units of good X were demanded. Now his income is
$150 per week and 12 units of good X are demanded. Using the percentage change formula, the
income elasticity of demand for good X equals ________.
A) 0.45 B) 0.40 C) 2.20 D) 2.50
10) Income elasticity of demand reflects
A) the change in total quantity demanded divided by the total change in income.
B) the responsiveness of the quantity demanded to changes in income, adjusting its relative
price so real income does not change.
C) the responsiveness of income of producers to a change in quantity sold of the good.
D) the responsiveness of demand to changes in income.
11) When Mary earned $3,200 per month, she bought 2 concert tickets each month. Now her
monthly income is $5,600, and the number of concert tickets she purchases has risen to 3 per
month. Mary s income elasticity of demand for concert tickets equals ________ and the tickets
are a(n) ________ good for Mary.
A) 1.36; normal B) 0.21; inferior
C) 0.21; complementary D) 0.73; normal
12) The income elasticity of demand is
A) the percentage change in demand divided by the percentage change in income.
B) the change in income divided by the percentage change in price.
C) the change in quantity demanded divided by the change in price.
D) the percentage change in income divided by the percentage change in quantity demanded.
13) A measure of the responsiveness of demand to changes in income, all other things being
constant, is
A) income elasticity of demand. B) price income elasticity of demand.
C) price elasticity of demand. D) cross price elasticity of demand.
