Alpha Corporation produces chairs. An economist working for the firm predicts that 'if people's incomes rise next year, then the demand for our chairs will increase, ceteris paribus.' The accuracy of the economist's prediction depends on whether the chairs Alpha produce
are normal goods.
have few complementary goods.
have many complementary goods.
have few substitutes.
When the decrease in the price of one good causes the demand for another good to decrease, the goods are
complements.
normal.
inferior.
substitutes.
The price elasticity of demand is the
ratio of the percentage change in quantity demanded to the percentage change in price.
ratio of the change in price to the change in quantity demanded.
ratio of the change in quantity demanded to the change in price .
ratio of the percentage change in price to the percentage change in quantity demanded.
The price of apples falls by 5% and quantity demanded increases by 6%. Demand for apples is:
inelastic.
perfectly inelastic
elastic.
perfectly elastic.
The price of bread increases by 22% and the quantity of bread demanded falls by 25%. This indicates that demand for bread is
elastic.
inelastic.
unitarily elastic
perfectly elastic
If the cross-price elasticity of demand between two goods is negative, then the two goods are
unrelated goods.
substitutes.
complements
normal goods.
If the quantity demanded of beef increases by 5% when the price of chicken increases by 20%, the cross-price elasticity of demand between beef and chicken is
-4.
4.
-0.25.
0.25.
The government is considering placing a tax on cigarettes to raise revenue to finance health- care projects. The demand for cigar ettes is price inelastic. Which of the following statements is TRUE?
This is a very good way to raise revenue both in the short term and in the long term because there are no substitutes for cigarettes.
he tax on cigarettes will raise substantial revenue in the short term, but may not raise as much revenue as anticipated in the long term because the demand for cigarettes is likely to become more elastic over time .
This tax will not raise much revenue either in the short term or the long term since demand is price inelastic.
No tax revenue can be raised in this way because sellers of cigarettes will just lower their price by the amount of the tax and therefore the price of cigarettes to consumers will not change.
The burden (incidence) of a tax will fall mainly on the producers if:
The producers are the ones legally obliged to pay the tax .
Supply is inelastic and dem and is elastic.
Demand is inelastic and supply is elastic.
There are many producers in the market.
Income elasticity of demand is the % change in quantity demanded divided by the % change in income. Which type of goods have negative income elasticity of demand?
Inferior goods.
Normal goods.
Substitute goods.
Complementary goods
Each type of elasticity has its own set of determinants. You are given four determinants below. Match them with the three types of elasticity given:
The number and closeness of substitute goods:
Time:
The proportion of income spent on the goods :
The rate at which the desire for a good is satisfies as consumption increases:
If total revenue rises by 10% when price increases by 5%, this means:
demand is price inelastic
demand is price elastic
demand is unit elastic
demand is perfectly inelastic
If a 5% increase in price causes no change in total revenue, this means:
demand is price inelastic
demand is price elastic
demand is unit elastic
demand is perfectly inelastic
Which of the following statements is true:
Because a straight line demand curve has constant slope, price elasticity of demand will remain constant as we move along various points on the curve.
Three supply curves, with different slopes, but all originating from the origin will have different price elasticities of supply.
We only need to know the magnitude of the elasticity, not its sign, to determine whether it falls in the elastic or inelastic range
A straight line demand curve with a slope of -1 delivers unit elasticity.
When firms advertise their product, they are trying to:
Shift the demand curve to the right
Make the demand curve steeper
Make demand for the product more inelastic
All of the above
“It is possible for milk to be treated as an inferior good and a normal good by different population segments in the same economy.”
False. A good can only have one characterization in an economy, normal or inferior, not both
False. Milk is always and everywhere a normal good.
True. Rich people will spend less on milk as their incomes increase, while poor people will spend more on milk as their incomes increase.
True. Some people in the economy like milk, others don’t.
A lower income country, Z, that exports primary products and imports luxury goods eventually runs into balance of payments problems because:
the income elasticity of demand for Z’s exports is low, while the income elasticity of demand for Z’s imports is high
Z’s exports grow at a slower rate than the rate of growth of the world income; Z’s imports rise at a faster rate than the rate of growth of Z’s income
Z’s terms of trade (price of exports / price of imports) deteriorate
All of the above.
“The government of a lower income country, K, is worried that rising domestic prices will lead to higher imports and therefore cause balance of payments problems.” This most closely illustrates which elasticity concept: