Question : 121) Suppose the supply curve for breakfast cereals upward sloping. : 1384166

121) Suppose the supply curve for breakfast cereals is upward sloping. Suppose also that as average household income increases we observe a fall in the price of breakfast cereal. We can conclude that breakfast cereal is a(n)

A) luxury good.

B) substitute good.

C) inferior good.

D) normal good.

E) necessity good.

122) Normal goods

A) have positive income elasticity of demand.

B) have negative income elasticity of demand.

C) have negative elasticity of supply.

D) do not have elasticity of demand.

E) are sometimes also inferior goods.

123) An inferior good has

A) a positive income elasticity of demand.

B) a negative income elasticity of demand.

C) an income elasticity of demand greater than zero but less than 1.

D) a positive income elasticity of demand and a price elasticity of demand greater than 1.

E) a negative price elasticity of demand.

124) If a producer knew his product to be an inferior good and he also knew average household income was falling, he might

A) decrease output because the demand for his product would rise.

B) increase output because the demand for his product would rise.

C) keep his output the same.

D) cut output immediately because the demand for his product would surely fall.

E) close down, because inferior goods are the first to be eliminated from household budgets when income falls.

125) Consider the income elasticity of demand for turnips. An increase in income will

A) increase the demand for turnips if turnips are inferior goods.

B) always increase the demand for turnips.

C) increase the supply of turnips.

D) decrease the demand for turnips if turnips have a very low price.

E) increase the demand for turnips if turnips are normal goods.

126) Suppose national income is rising steadily at 2% per year over a 5-year period. Over the same time period, suppose quantity demanded for iPods and iPhones increases at 5% per year, but no other relevant variables are changing.  We can conclude that the income elasticity for these products is ________ and that these products are ________ goods.

A) 0.4; inferior

B) 4.0; normal

C) 2.5; luxury

D) 10.0; necessities

E) 4.0; necessities

127) If the income elasticity of demand for a good is – 3.4, a 25% increase in income results in

A) a 4% increase in quantity demanded.

B) a 0.85% increase in quantity demanded.

C) an 8.5% decrease in quantity demanded.

D) an 85% decrease in the quantity demanded.

E) There is not enough information to answer this question.

128) Suppose the price elasticity of demand for good X is 1.5. If household income increases by 25%, ceteris paribus, what is the change in quantity demanded for good X?

A) a 37.5% increase in quantity demanded

B) a 3.75% increase in quantity demanded

C) a 0.375% increase in quantity demanded

D) no change in quantity demanded

E) There is not enough information to answer this question.

129) Cross-price elasticity of demand may be defined as

A)

B)

C)

D)

E)

130) If two goods, X and Y, have a negative cross elasticity of demand, then we know that they

A) are substitutes.

B) are complements.

C) are both inferior goods.

D) each have a price elasticity greater than one.

E) are both normal goods.