ECON 202 CH. 6 Essay Example For Students

ECON 202 CH. 6 Essay The price elasticity of demand coefficient measures: A. buyer responsiveness to price changes. B. the extent to which a demand curve shifts as incomes change. C. the slope of the demand curve. D. how far business executives can stretch their fixed costs. A. buyer responsiveness to price changes. The basic formula for the price elasticity of demand coefficient is: A. absolute decline in quantity demanded/absolute increase in price. B. percentage change in quantity demanded/percentage change in price. C. absolute decline in price/absolute increase in quantity demanded. D. percentage change in price/percentage change in quantity demanded. B. percentage change in quantity demanded/percentage change in price. The demand for a product is inelastic with respect to price if: A. consumers are largely unresponsive to a per unit price change. B. the elasticity coefficient is greater than 1. C. a drop in price is accompanied by a decrease in the quantity demanded. D. a drop in price is accompanied by an increase in the quantity demanded. A. consumers are largely unresponsive to a per unit price change. If the price elasticity of demand for a product is 2.5, then a price cut from $2.00 to $1.80 will: A. increase the quantity demanded by about 2.5 percent. B. decrease the quantity demanded by about 2.5 percent. C. increase the quantity demanded by about 25 percent. D. increase the quantity demanded by about 250 percent. C. increase the quantity demanded by about 25 percent. Suppose that as the price of Y falls from $2.00 to $1.90 the quantity of Y demanded increases from 110 to 118. Then the price elasticity of demand is: A. 4.00. B. 2.09. C. 1.37. D. 3.94. C. 1.37. Which of the following is not characteristic of the demand for a commodity that is elastic? A. The relative change in quantity demanded is greater than the relative change in price. B. Buyers are relatively sensitive to price changes. C. Total revenue declines if price is increased. D. The elasticity coefficient is less than one. D. The elasticity coefficient is less than one. If the demand for product X is inelastic, a 4 percent increase in the price of X will: A. decrease the quantity of X demanded by more than 4 percent. B. decrease the quantity of X demanded by less than 4 percent. C. increase the quantity of X demanded by more than 4 percent. D. increase the quantity of X demanded by less than 4 percent. B. decrease the quantity of X demanded by less than 4 percent. If a firm can sell 3,000 units of product A at $10 per unit and 5,000 at $8, then: A. the price elasticity of demand is 0.44. B. A is a complementary good. C. the price elasticity of demand is 2.25. D. A is an inferior good. C. the price elasticity of demand is 2.25. A perfectly inelastic demand schedule: A. rises upward and to the right, but has a constant slope. B. can be represented by a line parallel to the vertical axis. C. cannot be shown on a two-dimensional graph. D. can be represented by a line parallel to the horizontal axis. B. can be represented by a line parallel to the vertical axis. The larger the coefficient of price elasticity of demand for a product, the: A. larger the resulting price change for an increase in supply. B. more rapid the rate at which the marginal utility of that product diminishes. C. less competitive will be the industry supplying that product. D. smaller the resulting price change for an increase in supply. D. smaller the resulting price change for an increase in supply. Most demand curves are relatively elastic in the upper-left portion because the original price: A. and quantity from which the percentage changes in price and quantity are calculated are both large. B. and quantity from which the percentage changes in price and quantity are calculated are both small. C. from which the percentage price change is calculated is small and the original quantity from which the percentage change in quantity is calculated is large. D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small. D. from which the percentage price change is calculated is large and the original quantity from which the percentage change in quantity is calculated is small. The price elasticity of demand for widgets is 0.80. Assuming no change in the demand curve for widgets, a 16 percent increase in sales implies a: A. 1 percent reduction in price. B. 12 percent reduction in price. C. 40 percent reduction in price. D. 20 percent reduction in price. D. 20 percent reduction in price. Suppose Aiyannas Pizzeria currently faces a linear demand curve and is charging a very high price per pizza and doing very little business. Aiyanna now decides to lower pizza prices by 5 percent per week for an indefinite period of time. We can expect that each successive week: A. demand will become more price elastic. B. price elasticity of demand will not change as price is lowered. C. demand will become less price elastic. D. the elasticity of supply will increase. C. demand will become less price elastic. The price elasticity of demand of a straight-line demand curve is: A. elastic in high-price ranges and inelastic in low-price ranges. B. elastic, but does not change at various points on the curve. C. inelastic, but does not change at various points on the curve. D. 1 at all points on the curve. A. elastic in high-price ranges and inelastic in low-price ranges. A leftward shift in the supply curve of product X will increase equilibrium price to a greater extent the: A. more elastic the supply curve. B. larger the elasticity of demand coefficient. C. more elastic the demand for the product. D. more inelastic the demand for the product. D. more inelastic the demand for the product. If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will: A. decrease the amount demanded by more than 10 percent. B. increase the amount demanded by more than 10 percent. C. decrease the amount demanded by less than 10 percent. D. increase the amount demanded by less than 10 percent. B. increase the amount demanded by more than 10 percent. The price elasticity of demand is generally: A. negative, but the minus sign is ignored. B. positive, but the plus sign is ignored. C. positive for normal goods and negative for inferior goods. D. positive because price and quantity demanded are inversely related. A. negative, but the minus sign is ignored. For a linear demand curve: A. elasticity is constant along the curve. B. elasticity is unity at every point on the curve. C. demand is elastic at low prices. D. demand is elastic at high prices. D. demand is elastic at high prices. The price of product X is reduced from $100 to $90 and, as a result, the quantity demanded increases from 50 to 60 units. Therefore demand for X in this price range: A. has declined. B. is of unit elasticity. C. is inelastic. D. is elastic. D. is elastic. If a demand for a product is elastic, the value of the price elasticity coefficient is: A. zero. B. greater than one. C. equal to one. D. less than one. B. greater than one. The concept of price elasticity of demand measures: A. the slope of the demand curve. B. the number of buyers in a market. C. the extent to which the demand curve shifts as the result of a price decline. D. the sensitivity of consumer purchases to price changes. D. the sensitivity of consumer purchases to price changes. Suppose the price of local cable TV service increased from $16.20 to $19.80 and as a result the number of cable subscribers decreased from 224,000 to 176,000. Along this portion of the demand curve, price elasticity of demand is: A. 0.8. B. 1.2. C. 1.6. D. 8.0 B. 1.2. If the price of hand calculators falls from $10 to $9 and, as a result, the quantity demanded increases from 100 to 125, then: A. demand is elastic. B. demand is inelastic. C. demand is of unit elasticity. D. not enough information is given to make a statement about elasticity. A. demand is elastic. A perfectly inelastic demand curve: A. has a price elasticity coefficient greater than unity. B. has a price elasticity coefficient of unity throughout. C. graphs as a line parallel to the vertical axis. D. graphs as a line parallel to the horizontal axis. C. graphs as a line parallel to the vertical axis. If quantity demanded is completely unresponsive to price changes, demand is: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic. A. perfectly inelastic. A firm can sell as much as it wants at a constant price. Demand is thus: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic. B. perfectly elastic. A demand curve which is parallel to the horizontal axis is: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic. B. perfectly elastic. When the percentage change in price is greater than the resulting percentage change in quantity demanded: A. a decrease in price will increase total revenue. B. demand may be either elastic or inelastic. C. an increase in price will increase total revenue. D. demand is elastic. C. an increase in price will increase total revenue. Suppose the price elasticity coefficients of demand are 1.43, 0.67, 1.11, and 0.29 for products W, X, Y, and Z respectively. A 1 percent decrease in price will increase total revenue in the case(s) of: A. W and Y. B. Y and Z. C. X and Z. D. Z and W. A. W and Y. Which of the following statements is not correct? A. If the relative change in price is greater than the relative change in the quantity demanded associated with it, demand is inelastic. B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases. C. Total revenue will not change if price varies within a range where the elasticity coefficient is unity. D. Demand tends to be elastic at high prices and inelastic at low prices. B. In the range of prices in which demand is elastic, total revenue will diminish as price decreases. In which of the following instances will total revenue decline? A. price rises and supply is elastic B. price falls and demand is elastic C. price rises and demand is inelastic D. price rises and demand is elastic D. price rises and demand is elastic If a firms demand for labor is elastic, a union-negotiated wage increase will: A. necessarily be inflationary. B. cause the firms total payroll to increase. C. cause the firms total payroll to decline. D. cause a shortage of labor. C. cause the firms total payroll to decline. The Illinois Central Railroad once asked the Illinois Commerce Commission for permission to increase its commuter rates by 20 percent. The railroad argued that declining revenues made this rate increase essential. Opponents of the rate increase contended that the railroads revenues would fall because of the rate hike. It can be concluded that: A. both groups felt that the demand was elastic but for different reasons. B. both groups felt that the demand was inelastic but for different reasons. C. the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic. D. the railroad felt that the demand for passenger service was elastic and opponents of the rate increase felt it was inelastic. C. the railroad felt that the demand for passenger service was inelastic and opponents of the rate increase felt it was elastic. If a firm finds that it can sell $13,000 worth of a product when its price is $5 per unit and $11,000 worth of it when its price is $6, then: A. the demand for the product is elastic in the $6-$5 price range. B. the demand for the product must have increased. C. elasticity of demand is 0.74. D. the demand for the product is inelastic in the $6-$5 price range. A. the demand for the product is elastic in the $6-$5 price range. Suppose the price elasticity of demand for bread is 0.20. If the price of bread falls by 10 percent, the quantity demanded will increase by: A. 2 percent and total expenditures on bread will rise. B. 2 percent and total expenditures on bread will fall. C. 20 percent and total expenditures on bread will fall. D. 20 percent and total expenditures on bread will rise. B. 2 percent and total expenditures on bread will fall. Gigantic State University raises tuition for the purpose of increasing its revenue so that more faculty can be hired. GSU is assuming that the demand for education at GSU is: A. decreasing. B. relatively elastic. C. perfectly elastic. D. relatively inelastic. D. relatively inelastic. If the demand for farm products is price inelastic, a good harvest will cause farm revenues to: A. increase. B. decrease. C. be unchanged. D. either increase or decrease, depending on what happens to supply. B. decrease. Other things the same, if a price change causes total revenue to change in the opposite direction, demand is: A. perfectly inelastic. B. relatively elastic. C. relatively inelastic. D. of unit elasticity. B. relatively elastic. If the price elasticity of demand for a product is unity, a decrease in price will: A. have no effect upon the amount purchased. B. increase the quantity demanded and increase total revenue. C. increase the quantity demanded, but decrease total revenue. D. increase the quantity demanded, but total revenue will be unchanged. D. increase the quantity demanded, but total revenue will be unchanged. In which of the following cases will total revenue increase? A. price falls and demand is inelastic B. price falls and supply is elastic C. price rises and demand is inelastic D. price rises and demand is elastic C. price rises and demand is inelastic A manufacturer of frozen pizzas found that total revenue decreased when price was lowered from $5 to $4. It was also found that total revenue decreased when price was raised from $5 to $6. Thus, A. the demand for pizza is elastic above $5 and inelastic below $5. B. the demand for pizza is elastic both above and below $5. C. the demand for pizza is inelastic above $5 and elastic below $5. D. $5 is not the equilibrium price of pizza. A. the demand for pizza is elastic above $5 and inelastic below $5. The total-revenue test for elasticity: A. is equally applicable to both demand and supply. B. does not apply to demand because price and quantity are inversely related. C. does not apply to supply because price and quantity are directly related. D. applies to the short-run supply curve, but not to the long-run supply curve. C. does not apply to supply because price and quantity are directly related. If the University Chamber Music Society decides to raise ticket prices to provide more funds to finance concerts, the Society is assuming that the demand for tickets is: A. parallel to the horizontal axis. B. shifting to the left. C. inelastic. D. elastic. C. inelastic. The state legislature has cut Gigantic State Universitys appropriations. GSUs Board of Regents decides to increase tuition fees to compensate for the loss of revenue. The board is assuming that the: A. demand for education at GSU is elastic. B. demand for education at GSU is inelastic. C. coefficient of price elasticity of demand for education at GSU is unity. D. coefficient of price elasticity of demand for education at GSU is greater than unity. B. demand for education at GSU is inelastic. Which of the following is correct? A. If demand is elastic, an increase in price will increase total revenue. B. If demand is elastic, a decrease in price will decrease total revenue. C. If demand is elastic, a decrease in price will increase total revenue. D. If demand is inelastic, an increase in price will decrease total revenue. C. If demand is elastic, a decrease in price will increase total revenue. Suppose that the price of peanuts falls from $3 to $2 per bushel and that, as a result, the total revenue received by peanut farmers changes from $16 to $14 billion. Thus: A. the demand for peanuts is elastic. B. the demand for peanuts is inelastic. C. the demand curve for peanuts has shifted to the right. D. no inference can be made as to the elasticity of demand for peanuts. B. the demand for peanuts is inelastic. Which of the following is correct? A. If the demand for a product is inelastic, a change in price will cause total revenue to change in the opposite direction. B. If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction. C. If the demand for a product is inelastic, a change in price may cause total revenue to change in either the opposite or the same direction. D. The price elasticity coefficient applies to demand, but not to supply. B. If the demand for a product is inelastic, a change in price will cause total revenue to change in the same direction. The demand schedules for such products as eggs, bread, and electricity tend to be: A. perfectly price elastic. B. of unit price elasticity. C. relatively price inelastic. D. relatively price elastic. C. relatively price inelastic. The elasticity of demand for a product is likely to be greater: A. if the product is a necessity, rather than a luxury good. B. the greater the amount of time over which buyers adjust to a price change. C. the smaller the proportion of ones income spent on the product. D. the smaller the number of substitute products available. B. the greater the amount of time over which buyers adjust to a price change. We would expect: A. the demand for Coca-Cola to be less price elastic than the demand for soft drinks in general. B. the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general. C. no relationship between the price elasticity of demand for Coca-Cola and the price elasticity of demand for soft drinks in general. B. the demand for Coca-Cola to be more price elastic than the demand for soft drinks in general. The narrower the definition of a product: A. the larger the number of substitutes and the greater the price elasticity of demand. B. the smaller the number of substitutes and the greater the price elasticity of demand. C. the larger the number of substitutes and the smaller the price elasticity of demand. D. the smaller the number of substitutes and the smaller the price elasticity of demand. A. the larger the number of substitutes and the greater the price elasticity of demand. The more time consumers have to adjust to a change in price: A. the smaller will be the price elasticity of demand. B. the greater will be the price elasticity of demand. C. the more likely the product is a normal good. D. the more likely the product is an inferior good. B. the greater will be the price elasticity of demand. The demand for autos is likely to be: A. less price elastic than the demand for Honda Accords. B. more price elastic than the demand for Honda Accords. C. of the same price elasticity as the demand for Honda Accords. D. perfectly inelastic. A. less price elastic than the demand for Honda Accords. Price elasticity of demand is generally: A. greater in the long run than in the short run. B. greater in the short run than in the long run. C. the same in both the short run and the long run. D. greater for necessities than it is for luxuries. A. greater in the long run than in the short run. Which of the following generalizations is not correct? A. The larger an item is in ones budget, the greater the price elasticity of demand. B. The price elasticity of demand is greater for necessities than it is for luxuries. C. The larger the number of close substitutes available, the greater will be the price elasticity of demand for a particular product. D. The price elasticity of demand is greater the longer the time period under consideration. B. The price elasticity of demand is greater for necessities than it is for luxuries. If price and total revenue vary in opposite directions, demand is: A. perfectly inelastic. B. perfectly elastic. C. relatively inelastic. D. relatively elastic. D. relatively elastic. The demand for a luxury good whose purchase would exhaust a big portion of ones income is: A. perfectly price inelastic. B. perfectly price elastic. C. relatively price inelastic. D. relatively price elastic. D. relatively price elastic. The demand for a necessity whose cost is a small portion of ones total income is: A. perfectly price inelastic. B. perfectly price elastic. C. relatively price inelastic. D. relatively price elastic. C. relatively price inelastic. The price elasticity of supply measures how: A. easily labor and capital can be substituted for one another in the production process. B. responsive the quantity supplied of X is to changes in the price of X. C. responsive the quantity supplied of Y is to changes in the price of X. D. responsive quantity supplied is to a change in incomes. B. responsive the quantity supplied of X is to changes in the price of X. The main determinant of elasticity of supply is the: A. number of close substitutes for the product available to consumers. B. amount of time the producer has to adjust inputs in response to a price change. C. urgency of consumer wants for the product. D. number of uses for the product. B. amount of time the producer has to adjust inputs in response to a price change. Suppose the supply of product X is perfectly inelastic. If there is an increase in the demand for this product, equilibrium price: A. will decrease but equilibrium quantity will increase. B. and quantity will both decrease. C. will increase but equilibrium quantity will decline. D. will increase but equilibrium quantity will be unchanged. D. will increase but equilibrium quantity will be unchanged. The supply of product X is elastic if the price of X rises by: A. 5 percent and quantity supplied rises by 7 percent. B. 8 percent and quantity supplied rises by 8 percent. C. 10 percent and quantity supplied remains the same. D. 7 percent and quantity supplied rises by 5 percent. A. 5 percent and quantity supplied rises by 7 percent. The supply of product X is inelastic (but not perfectly inelastic) if the price of X rises by: A. 5 percent and quantity supplied rises by 7 percent. B. 8 percent and quantity supplied rises by 8 percent. C. 10 percent and quantity supplied remains the same. D. 7 percent and quantity supplied rises by 5 percent. D. 7 percent and quantity supplied rises by 5 percent. The elasticity of supply of product X is unitary if the price of X rises by: A. 5 percent and quantity supplied rises by 7 percent. B. 8 percent and quantity supplied rises by 8 percent. C. 10 percent and quantity supplied stays the same. D. 7 percent and quantity supplied rises by 5 percent. B. 8 percent and quantity supplied rises by 8 percent. The supply of product X is perfectly inelastic if the price of X rises by: A. 5 percent and quantity supplied rises by 7 percent. B. 8 percent and quantity supplied rises by 8 percent. C. 10 percent and quantity supplied stays the same. D. 7 percent and quantity supplied rises by 5 percent. C. 10 percent and quantity supplied stays the same. It takes a considerable amount of time to increase the production of pork. This implies that: A. a change in the demand for pork will not affect its price in the short run. B. the short-run supply curve for pork is less elastic than the long-run supply curve for pork. C. an increase in the demand for pork will elicit a larger supply response in the short run than in the long run. D. the long-run supply curve for pork is less elastic than the short-run supply curve for pork. B. the short-run supply curve for pork is less elastic than the long-run supply curve for pork. Suppose that the price of product X rises by 20 percent and the quantity supplied of X increases by 15 percent. The coefficient of price elasticity of supply for good X is: A. negative and therefore X is an inferior good. B. positive and therefore X is a normal good. C. less than 1 and therefore supply is inelastic. D. more than 1 and therefore supply is elastic. C. less than 1 and therefore supply is inelastic. If the supply of product X is perfectly elastic, an increase in the demand for it will increase: A. equilibrium quantity but reduce equilibrium price. B. equilibrium quantity but equilibrium price will be unchanged. C. equilibrium price but reduce equilibrium quantity. D. equilibrium price but equilibrium quantity will be unchanged. B. equilibrium quantity but equilibrium price will be unchanged. Suppose the price of a product rises and the total revenue of sellers increases. A. It can be concluded that the demand for the product is elastic. B. It can be concluded that the supply of the product is elastic. C. It can be concluded that the supply of the product is inelastic. D. No conclusion can be reached with respect to the elasticity of supply. D. No conclusion can be reached with respect to the elasticity of supply. Supply curves tend to be: A. perfectly elastic in the long run because consumer demand will have sufficient time to adjust fully to changes in supply. B. more elastic in the long run because there is time for firms to enter or leave the industry. C. perfectly inelastic in the long run because the law of scarcity imposes absolute limits on production. D. less elastic in the long run because there is time for firms to enter or leave an industry. B. more elastic in the long run because there is time for firms to enter or leave the industry. For an increase in demand the price effect is smallest and the quantity effect is largest: A. when supply is least elastic. B. in the long run. C. in the short run. D. in the immediate market period. B. in the long run. A supply curve that is a vertical straight line indicates that: A. production costs for this product cannot be calculated. B. the relationship between price and quantity supplied is inverse. C. a change in price will have no effect on the quantity supplied. D. an unlimited amount of the product will be supplied at a constant price. C. a change in price will have no effect on the quantity supplied. A supply curve that is parallel to the horizontal axis suggests that: A. the industry is organized monopolistically. B. the relationship between price and quantity supplied is inverse. C. a change in demand will change price in the same direction. D. a change in demand will change the equilibrium quantity but not price. D. a change in demand will change the equilibrium quantity but not price. An increase in demand will increase equilibrium price to a greater extent: A. if the product is a normal good. B. if the product is an inferior good. C. the less elastic the supply curve. D. the more elastic the supply curve. C. the less elastic the supply curve. The supply of known Monet paintings is: A. perfectly elastic. B. perfectly inelastic. C. relatively elastic. D. relatively inelastic. B. perfectly inelastic. An antidrug policy which reduces the supply of heroin might: A. increase street crime because the addicts demand for heroin is highly inelastic. B. reduce street crime because the addicts demand for heroin is highly elastic. C. reduce street crime because the addicts demand for heroin is highly inelastic. D. increase street crime because the addicts demand for heroin is highly elastic. A. increase street crime because the addicts demand for heroin is highly inelastic. Studies of the minimum wage suggest that the price elasticity of demand for teenage workers is relatively inelastic. This means that: A. an increase in the minimum wage would increase the total incomes of teenage workers as a group. B. an increase in the minimum wage would decrease the total incomes of teenage workers as a group. C. the unemployment effect of an increase in the minimum wage would be relatively large. D. the cross elasticity of demand between teenage and adult workers is positive and very large. A. an increase in the minimum wage would increase the total incomes of teenage workers as a group. Studies show that the demand for gasoline is: A. price inelastic in the short run, but elastic in the long run. B. price inelastic in both the short and long run. C. price elastic in the short run, but inelastic in the long run. D. price elastic in both the short and long run. B. price inelastic in both the short and long run. Farmers often find that large bumper crops are associated with declines in their gross incomes. This suggests that: A. farm products are normal goods. B. farm products are inferior goods. C. the price elasticity of demand for farm products is less than 1. D. the price elasticity of demand for farm products is greater than 1. C. the price elasticity of demand for farm products is less than 1. The supply curve of a one-of-a-kind original painting is: A. relatively elastic. B. relatively inelastic. C. perfectly inelastic. D. perfectly elastic. C. perfectly inelastic. The price of old baseball cards rises rapidly with increases in demand because: A. the supply of old baseball cards is price inelastic. B. the supply of old baseball cards is price elastic. C. the demand for old baseball cards is price inelastic. D. the demand for old baseball cards is price elastic. A. the supply of old baseball cards is price inelastic. The supply curve of antique reproductions is: A. relatively elastic. B. relatively inelastic. C. perfectly inelastic. D. unit elastic. A. relatively elastic. Suppose the income elasticity of demand for toys is +2.00. This means that: A. a 10 percent increase in income will increase the purchase of toys by 20 percent. B. a 10 percent increase in income will increase the purchase of toys by 2 percent. C. a 10 percent increase in income will decrease the purchase of toys by 2 percent. D. toys are an inferior good. A. a 10 percent increase in income will increase the purchase of toys by 20 percent. If the income elasticity of demand for lard is -3.00, this means that: A. lard is a substitute for butter. B. lard is a normal good. C. lard is an inferior good. D. more lard will be purchased when its price falls. C. lard is an inferior good. The formula for cross elasticity of demand is percentage change in: A. quantity demanded of X/percentage change in price of X. B. quantity demanded of X/percentage change in income. C. quantity demanded of X/percentage change in price of Y. D. price of X/percentage change in quantity demanded of Y. C. quantity demanded of X/percentage change in price of Y. Cross elasticity of demand measures how sensitive purchases of a specific product are to changes in: A. the price of some other product. B. the price of that same product. C. income. D. the general price level. A. the price of some other product. The larger the positive cross elasticity coefficient of demand between products X and Y, the: A. stronger their complementariness. B. greater their substitutability. C. smaller the price elasticity of demand for both products. D. the less sensitive purchases of each are to increases in income B. greater their substitutability. We would expect the cross elasticity of demand between Pepsi and Coke to be: A. positive, indicating normal goods. B. positive, indicating inferior goods. C. positive, indicating substitute goods. D. negative, indicating substitute goods. C. positive, indicating substitute goods. We would expect the cross elasticity of demand between dress shirts and ties to be: A. positive, indicating normal goods. B. positive, indicating complementary goods. C. negative, indicating substitute goods. D. negative, indicating complementary goods. D. negative, indicating complementary goods. Compared to coffee, we would expect the cross elasticity of demand for: A. tea to be negative, but positive for cream. B. tea to be positive, but negative for cream. C. both tea and cream to be negative. D. both tea and cream to be positive. B. tea to be positive, but negative for cream. We would expect the cross elasticity of demand for Pepsi to be greater in relation to other soft drinks than that for soft drinks in general because: A. soft drinks are normal goods. B. the income effect always exceeds the substitution effect. C. there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically. D. there are more good substitutes for soft drinks as a whole than for Pepsi specifically. C. there are fewer good substitutes for soft drinks as a whole than for Pepsi specifically. Suppose that a 10 percent increase in the price of normal good Y causes a 20 percent increase in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: A. negative and therefore these goods are substitutes. B. negative and therefore these goods are complements. C. positive and therefore these goods are substitutes. D. positive and therefore these goods are complements. C. positive and therefore these goods are substitutes. Suppose that a 20 percent increase in the price of normal good Y causes a 10 percent decline in the quantity demanded of normal good X. The coefficient of cross elasticity of demand is: A. negative and therefore these goods are substitutes. B. negative and therefore these goods are complements. C. positive and therefore these goods are substitutes. D. positive and therefore these goods are complements. B. negative and therefore these goods are complements. Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is: A. negative and therefore X is an inferior good. B. negative and therefore X is a normal good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good. D. positive and therefore X is a normal good. Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is: A. negative and therefore X is an inferior good. B. positive but less than one; therefore X is an inferior good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good. D. positive and therefore X is a normal good. Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X is: A. negative and therefore X is an inferior good. B. negative and therefore X is a normal good. C. positive and therefore X is an inferior good. D. positive and therefore X is a normal good. A. negative and therefore X is an inferior good. Which type of goods is most adversely affected by recessions? A. Goods for which the income elasticity coefficient is relatively low or negative. B. Goods for which the income elasticity coefficient is relatively high and positive. C. Goods for which the cross elasticity coefficient is positive. D. Goods for which the cross elasticity coefficient is negative. B. Goods for which the income elasticity coefficient is relatively high and positive. Which of the following goods (with their respective income elasticity coefficients in parentheses) will most likely suffer a decline in demand during a recession? A. Dinner at a nice restaurant (+1.8) B. Chicken purchased at the grocery store for preparation at home (+0.25) C. Facial tissue (+0.6) D. Plasma screen and LCD TVs (+4.2) D. Plasma screen and LCD TVs (+4.2) Which of the following goods will least likely suffer a decline in demand during a recession? A. Dinner at a nice restaurant B. iPods C. Toothpaste D. Plasma screen and LCD TVs C. Toothpaste