Extra Questions On Other Types of Elasticity *Cross-Price *Income ...

Extra Questions On Other Types of Elasticity
*Cross-Price
*Income
*Supply
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1) Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in
quantity demanded for organic produce.
A) -0.66 B) 0.5 C) 1.5 D) 2
2) Which of the following items is likely to have the highest income elasticity of demand? 2)
A) a meal at Taco Bell B) a tank of gasoline
C) a vacation home in the Swiss Alps D) a bus ride
3) According to a study of the U.S. demand for alcoholic beverages, the price elasticity of demand for
beer is -0.23. Which of the following could explain why the price elasticity of demand for beer is
low?
A) More and more people are switching to wine and cocktails rather than beer.
B) Beer is an inferior alcoholic beverage.
C) The price of beer is relatively low and for many people it is a habit forming product.
D) There are only a few major suppliers of beer.
4) For people who live near a bus route, a subway station, or a commuter rail line, public
transportation provides a substitute to driving their own cars. So, for these people, the cross-price
elasticity of demand between gasoline and public transportation is
A) negative. B) infinity. C) zero. D) positive.
5) Suppose a 4 percent increase in price results in a 2 percent increase in the quantity supplied of a
good. Calculate the price elasticity of supply and characterize the product.
A) 0.5; The product is inelastic. B) 50%; The product is inelastic.
C) 0.2; The product is inelastic. D) 2; The product is elastic.
6) If the cross-price elasticity of demand between Breeze Detergent and Faber Detergent is a relatively
large positive number, then it indicates that
A) detergents are necessities.
B) the two brands are probably made by the same company.
C) the two brands of detergent are close substitutes.
D) consumers have a distinct preference for one brand versus the other.
7) Price elasticity of supply is used to gauge 7)
A) how responsive suppliers are to price changes.
B) how responsive sales are to a change in input prices
C) how responsive suppliers are to changes in future prices.
D) how responsive suppliers are to a change in demand.
1
1)
3)
4)
5)
6)

8) Suppose the California Nurses Union successfully secured a 12 percent increase in the wages of
registered nurses. If a hospital responds by reducing the quantity of registered nurses hired and
increasing the quantity of physician's assistants hired, what conclusion can you draw?
A) Physician's assistants are more valuable in terms of their productivity.
B) The cross-price elasticity of demand between registered nurses and physician's assistants is
negative.
C) The cross-price elasticity of demand between registered nurses and physician's assistants is
positive.
D) The price elasticity of demand for registered nurses is negative while the price elasticity of
demand for physician's assistants is positive.
9) Consider the following pairs of items:
a. shampoo and conditioner
b. iPhones and earbuds
c. a laptop computer and a desktop computer
d. beef and pork
e. air-travel and weed killer
Which of the pairs listed will have cross-price elasticity of zero?
A) c only since most people cannot do without computers
B) a and b only
C) e only
D) none of the pairs listed
10) Linesha, a college student working part-time receives a wage increase. An avid movie buff, she
increased her purchases of DVDs and reduced her purchases of video cassettes. Based on this
information,
A) DVDs are normal goods and video cassettes are inferior goods.
B) DVDs and video cassettes are substitutes.
C) the cross-price elasticity between DVDs and video cassettes is negative.
D) DVDs and video cassettes are normal goods.
11) Consider the following pairs of items:
a. shampoo and conditioner
b. iPhones and earbuds
c. a laptop computer and a desktop computer
d. beef and pork
e. air-travel and weed killer
Which of the pairs listed will have a negative cross-price elasticity?
A) a and b only B) e only C) c and d only D) a, b, and c only
12) Suppose Tinsel Town Videos lowers the price of its movie club membership by 10 percent and as a
result, CineArts Videos experienced a 16 percent decline in its movie club membership. What is the
value of the cross-price elasticity between the two movie club memberships?
A) -1.6 B) -0.625 C) 0.625 D) 1.6
2
8)
9)
10)
11)
12)

13) Cross-price elasticity of demand is calculated as the 13)
A) percentage change in quantity supplied divided by percentage change in price of a good.
B) percentage change in quantity sold divided by percentage change in buyers' incomes.
C) percentage change in quantity demanded divided by percentage change in price of a good.
D) percentage change in quantity demanded of one good divided by percentage change in price
of a different good.
14) If the cross-price elasticity of demand for computers and software is negative, this means the two
goods are
A) complements. B) normal. C) substitutes. D) inferior.
3
14)