Question 1

Suppose the price of coffee increases by 10%, and as a result, the quantity demanded of tea increases by 15%. What is the cross-price elasticity of demand for tea with respect to coffee?

Accepted Answer

$$\frac{+15\%}{+10\%} = +1.5$$

Question 2

If the cross-price elasticity of demand between two goods is negative, what does this indicate about the relationship between the goods?

Accepted Answer

They are complements.

Question 3

A 5% increase in the price of cookies leads to a 7% increase in the quantity demanded of candy. What is the cross-price elasticity of demand for candy, and what does it imply?

Accepted Answer

$$\frac{+7\%}{+5\%} = +1.4$$, implying the goods are substitutes.

Question 4

If the income elasticity of demand for restaurant meals is $$+1.6$$, what type of good are restaurant meals considered to be?

Accepted Answer

Normal good

Question 5

A 10% increase in income leads to a 16% increase in the quantity demanded for restaurant meals. What is the income elasticity of demand?

Accepted Answer

$$\frac{+16\%}{+10\%} = +1.6$$

Question 6

If the income elasticity of demand for Mac & Cheese is $$+0.3$$, what does this suggest about Mac & Cheese?

Accepted Answer

It is a normal good, but a necessity.

Question 7

Which of the following goods is most likely to have a negative income elasticity of demand?

Accepted Answer

Generic store-brand bread

Question 8

If the price of donuts increases by 12% and the quantity supplied increases by 16%, what is the price elasticity of supply for donuts?

Accepted Answer

$$\frac{+16\%}{+12\%} = +1.33$$

Question 9

Which of the following factors would make the price elasticity of supply more elastic for a product?

Accepted Answer

Easily available variable inputs

Question 10

A landscaping company can quickly hire more workers and buy more supplies when prices rise. What does this imply about the price elasticity of supply for landscaping services?

Accepted Answer

Supply is elastic due to flexibility in variable inputs.

Question 11

Which scenario best illustrates a perfectly inelastic supply curve?

Accepted Answer

A stadium with a fixed number of seats for a concert.

Question 12

If the price elasticity of supply for a product is less than 1, what does this indicate?

Accepted Answer

Supply is inelastic; quantity supplied is less responsive to price changes.

Question 13

Which of the following is NOT a determinant of the price elasticity of supply?

Accepted Answer

Consumer preferences

Question 14

A restaurant is operating at full kitchen capacity. If prices rise, what is likely to happen to the price elasticity of supply?

Accepted Answer

Supply will be inelastic because production cannot easily increase.

Question 15

Over time, the price elasticity of supply for most goods tends to:

Accepted Answer

Increase, as firms can adjust production and capacity.

Question 16

If the cross-price elasticity of demand between sweaters and iPhones is zero, what does this mean?

Accepted Answer

The goods are unrelated.

Question 17

A tutoring service increases its hourly rate from $$5 to 20$$, and the number of hours tutored per week rises from 2 to 8. Using the midpoint formula, what is the price elasticity of supply?

Accepted Answer

Question 18

Which of the following goods is most likely to have a highly elastic supply?

Accepted Answer

Gasoline (storable product)

Question 19

If a good has a positive cross-price elasticity of demand with another good, what does this imply?

Accepted Answer

The goods are substitutes.

Elasticity in Microeconomics: Demand and Supply Responsiveness

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