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Introduction to Economics: In class exercise - part 2 - Chapter 4 Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1)
The cross elasticity of demand is calculated as the percentage change in the 1)
_______
A)
price of one good divided by the percentage change in the price of another good. B)
quantity demanded of one good divided by the percentage change in the price of another good C)
price of one good divided by the percentage change in the quantity demanded of another good. D)
quantity demanded of one good divided by the percentage change in the quantity demanded of another good

2)
Toothpaste and toothbrushes are complements, so the ________ elasticity of demand is ________. 2)
_______
A)
income; negative
B)
cross; negative
C)
income; positive
D)
cross; positive

3)
Blue pens and black pens are close substitutes. The cross elasticity of demand for black pens with respect to the price of blue pens is ________. 3)
_______
A)
positive
B)
zero
C)
negative
D)
equal to 1

[pic]

4)
In the above figure, if the price of good A falls from P0 to P1 and the demand for good B increases from D0 to D1, then goods A and B 4)
_______
A)
are substitute goods.
B)
will have a negative cross elasticity of demand.
C)
are inferior goods.
D)
are both price elastic but not perfectly price elastic.

5)
In the above figure, if the two goods A and B, are complements , which of the following is true? 5)
_______
A)
The shift from D0 to D1 for good B leads to a shift from S0 to S1 for good A. B)
The shift from S0 to S1 for good A leads to the shift from D0 to D1 for good B. C)
The cross elasticity of demand between them is positive.
D)
The law of demand is violated in both markets.

6)
Donuts and coffee are complements. When the price of a donut increases, the demand for coffee ________ and the cross elasticity of demand for coffee with respect to the price of a donut is ________. 6)

_______
A)
increases; positive
B)
decreases; positive
C)
decreases; negative
D)
increases; negative

7)
If the cross elasticity of demand between coffee and tea is positive, an increase in the price of tea will shift the demand curve for 7)
_______
A)
tea leftward.
B)
tea rightward.
C)
coffee rightward.
D)
coffee leftward.

8)
If the cross elasticity of demand is -5 between french fries and orange drink, then french fries 8)
_______
A)
are a normal good and orange drink is an inferior good.
B)
and orange drink are substitutes.
C)
and orange drink are complements.
D)
are an inferior good and orange drink is a normal good.

9)
The income elasticity of demand is a measure of the responsiveness of the 9)
_______
A)
quantity of a good demanded to changes in its price.
B)
consumer's income to a change in the price of the goods he or she consumes. C)
quantity of a good demanded to changes in income.
D)
quantity of a good demanded to changes in another good's price.

10)
The income elasticity of demand is
10)
______
A)
negative for a normal good and positive for an inferior good. B)
positive for a normal good and negative for an inferior good. C)
always positive.
D)
always negative.

11)
Bus rides and canned soup are inferior goods, so the ________ elasticity of demand is ________. 11)
______
A)
cross; negative
B)
income; positive
C)
income; negative
D)
cross; positive

12)
The income elasticity of demand for bicycles is +10, which implies that bicycles are 12)
______
A)
a normal...
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