Question : 5.3   Cross Elasticity and Income Elasticity 1) The extent to which : 1226450

5.3   Cross Elasticity and Income Elasticity

1) The extent to which the demand for a good changes when the price of a substitute or complement changes, other things remaining the same, is measured as the

A) income elasticity of demand.

B) cross elasticity of demand.

C) price elasticity of demand.

D) price elasticity of supply.

E) cross income elasticity of demand.

2) The cross elasticity of demand is a measure of how

A) responsive consumers are to changes in the price of a product.

B) responsive suppliers are to changes in the price of a product.

C) demand for a product changes when the price of a substitute or complement changes.

D) total revenue changes when the price of a product changes.

E) demand for a product changes when income changes.

3) If we are trying to determine if two different products are substitutes, complements, or not related at all, we should find the value of the

A) price elasticity of demand for both goods.

B) price elasticity of supply for both goods.

C) income elasticity of demand for both goods.

D) cross elasticity of demand.

E) price elasticity of demand and the price elasticity of supply for both goods.

4) If Microsoft wanted to prove to the Justice Department that its Windows software has many substitutes that personal computer owners can use, Microsoft hopes to find

A) that the demand for Windows’ is inelastic.

B) that the demand for Windows is elastic.

C) a large positive value for the cross elasticity of Windows and other software.

D) a negative income elasticity for Windows.

E) a positive income elasticity for Windows.

5) What is the formula for the cross elasticity of demand? The percentage change in the

A) quantity demanded divided by the percentage change in the price of a substitute or complement.

B) quantity supplied divided by the percentage change in price.

C) quantity demanded divided by the percentage change in price.

D) quantity demanded divided by the percentage change in income.

E) equilibrium quantity demanded divided by the equilibrium quantity supplied.

6) If a 1 percent increase in the price of X increases the quantity demanded of Y by 2 percent, then X and Y are

A) complements and the cross elasticity of demand equals 2.

B) substitutes and the cross elasticity of demand equals 1/2.

C) substitutes and the cross elasticity of demand equals 2.

D) complements and the income elasticity of demand equals 2.

E) normal goods and the income elasticity of demand of each equals 2.

7) The price of coffee rose 40 percent and the quantity of coffee demanded fell by 20 percent. The quantity of doughnuts demanded also fell by 20 percent. From this information, we can conclude that

A) the demand for coffee is elastic.

B) the demand for coffee is unit elastic.

C) coffee is an inferior good.

D) the cross elasticity demand between coffee and doughnuts is -0.5.

E) the income elasticity of demand for coffee is 2.

8) If the price of a movie rises 3 percent and, as a result, the quantity demanded of video rentals increases 6 percent, then the cross elasticity of demand is

A) 2.

B) 1/2.

C) -1/2.

D) -2.

E) 9.

9) Based on data in the table above, use the midpoint method to determine the cross elasticity of demand for ice cream and cake.

A) The cross elasticity is -0.75.

B) The cross elasticity is -1.75.

C) The cross elasticity is -0.83.

D) The cross elasticity is -4.0.

E) The cross elasticity is -1.33.

10) Based on the data in the table above, ice cream and cake are ________ goods.

A) inferior

B) normal

C) substitute

D) complementary

E) Both answers B and D are correct.