CHAPTER 6 EXAM 2

For which pairs of goods is the cross-price elasticity most likely to be positive?

Pens and pencils

Income elasticity of demand measures how

the quantity demanded changes as consumer income changes.

Demand is said to be inelastic if

the quantity demanded changes only slightly when the price of the good changes.

If a 16 percent increase in price for a good results in a 7 percent decrease in quantity demanded, the price elasticity of demand is

0.44

Which of the following statements is valid when the market supply curve is vertical?

Market quantity supplied does not change when the price changes.

For which of the following goods is the income elasticity of demand likely lowest?

Clothing

An advantage of using the midpoint method to calculate the price elasticity of demand is that it uses the metric system. TF

False

If the price elasticity of supply is 0.5 and the quantity supplied decreases by 6%, then the price must have decreased by 3%. TF

False

Suppose that two supply curves pass through the same point. One is steep, and the other is flat. What do the curves represent?

The steeper supply curve represents a supply that is inelastic relative to the supply represented by the flatter supply curve.

If a firm that produces honey is facing elastic demand, then the firm would decrease price to increase revenue. TF

True

Necessities tend to have inelastic demands, whereas luxuries tend to have elastic demands. TF

True

A good will have a more inelastic demand, the

broader the definition of the market

Suppose the cross-price elasticity of demand between peanut butter and jelly is −2.50. This implies that a 20 percent increase in the price of peanut butter will cause the quantity of jelly purchased to

fall by 50 percent.

If the price elasticity of supply is 0.7, and price increased by 24 percent, quantity supplied would

increase by 16.80 percent

The supply of a good will be more elastic, the

longer the time period being considered.