Cross-Price Elasticity of Demand quiz #1 Flashcards
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.
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