Microeconomics Module 8

Cross-price elasticity of demand is

negative for complementary goods.

The cross-price elasticity of demand measures how sensitive purchases of a specific product are to changes in

the price of some other product.

If a 10% increase in the price of one good results in no change in the quantity demanded of another good, then it can be concluded that the two goods are

unrelated

During a recession, median income falls by 15%. If the demand for grapes falls by 12%, then grapes are a(n) ______ good with an income elasticity of demand of _______

Normal; 0.8

Which of the following scenarios is likely to make the supply of Maine lobsters more elastic?

Time passes to allow lobstermen to adjust to market conditions

Suppose the cross-price elasticity of demand between avocados and limes is -0.3 (E avocados / limes = −0.3). If the price of limes increases by 10%, we would expect the quantity of avocados demanded to BLANK by BLANK %

decrease; 3

Generic macaroni and cheese is an inferior good. Demand for generic macaroni and cheese is likely to increase when:

income decreases

The definition of a normal good suggests that the

income elasticity of demand for the good is greater than 0.

A negative income elasticity of demand indicates that the product

is an inferior good.

If an increase in the price of pineapple juice of 10% results in an increase in the demand for grape juice of 5%, the cross-price elasticity of demand between pineapple juice and grape juice is:

0.5

The price elasticity of supply for a product will be 2 if a

1% decrease in price causes a 2% decrease in quantity supplied.

At a price of $4 per unit, Gadgets Inc. is willing to supply 20,000 gadgets, while United Gadgets is willing to supply 10,000 gadgets. If the price were to increase to $8 per unit, their respective quantities supplied would rise to 45,000 and 25,000. If these are the only two firms supplying gadgets, what is the elasticity of supply in the market for gadgets (use the midpoint formula)?

1.2

Suppose the price elasticity of supply for crude oil is 2.5. How much would price have to rise to increase the quantity supplied by 20%?

8%

Which of the four time horizons is most likely to represent the firm's long-run supply curve?

Horizon A

We would expect the cross-price elasticity of demand between dress shirts and ties to be __________, indicating that they are_____________

negative; complements.

We would expect the cross-price elasticity of demand between Pepsi and Coke to be

positive, indicating substitute goods.

The formula for the cross-price elasticity of demand is percentage change in

quantity demanded of B/percentage change in price of A.

Suppose the price of sweet corn increases this summer (and is expected to remain at this level for at least a couple of years). All other things being the same, you would expect:

quantity supplied to increase more in the following summers than this summer.