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Cross-Price Elasticity of Demand quiz #1

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  • What does the cross-price elasticity of demand measure?
    The cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good, indicating whether the goods are substitutes, complements, or unrelated.
  • For which pairs of goods is the cross-price elasticity of demand most likely to be positive?
    The cross-price elasticity of demand is most likely to be positive for pairs of goods that are substitutes, such as tea and coffee.
  • Which of the following statements is true about the cross-price elasticity of demand?
    A positive cross-price elasticity indicates that two goods are substitutes, a negative value indicates they are complements, and a value of zero means they are unrelated.
  • Which of the following goods represent a cross-price elasticity of demand likely greater than zero?
    Goods that are substitutes, such as butter and margarine, have a cross-price elasticity of demand likely greater than zero.
  • What would you expect the cross-price elasticity of demand between Pepsi and Coke to be?
    The cross-price elasticity of demand between Pepsi and Coke would be positive, since they are substitute goods.
  • How does the cross-price elasticity of demand measure the relationship between two goods?
    Cross-price elasticity of demand measures the percentage change in the quantity demanded of one good in response to a percentage change in the price of another good.
  • What is always in the numerator when calculating any type of elasticity, including cross-price elasticity?
    Quantity demanded is always in the numerator for all elasticity calculations, including cross-price elasticity.
  • Which calculation method is used for cross-price elasticity of demand, and what is unique about its denominator?
    The midpoint method is used, but the denominator is the price change of a different good rather than the good itself.
  • If the price of one good increases and the quantity demanded of another good decreases, what does this indicate about their relationship?
    This indicates that the goods are complements, as a price increase in one leads to a demand decrease in the other.
  • What logical conclusion can you draw if the cross-price elasticity of demand between two goods is zero?
    If the cross-price elasticity is zero, the goods are unrelated, meaning a price change in one does not affect the demand for the other.
  • What does the cross-price elasticity of demand measure, and how can its value indicate whether two goods are substitutes, complements, or unrelated?
    Cross-price elasticity of demand measures how the quantity demanded of one good responds to a change in the price of another good. A positive value indicates the goods are substitutes, a negative value indicates they are complements, and a value of zero means the goods are unrelated.