Question

1.A baker of chocolate chip cookies is likely to have a ______________ price elasticity of supply than the seller of rare baseball cards due to ______________.

more elastic; the availability of inputs

less elastic; a shorter adjustment time

less elastic; a more flexible production process

less elastic; the availability of inputs

2.

A good that has an income elasticity of 2.3 is:

a necessity good.

a complement good.

an inferior good.

a luxury good.

3.

How much the demand for one good changes in response to a change in the price of a different good is measured by:

income elasticity.

price elasticity of demand.

cross-price elasticity.

price elasticity of supply.

4.

Which pair of goods is likely to have the largest positive cross-price elasticity?

Ramen noodles and a Rolex watch

Cross-price elasticity is always negative, and simply reported in absolute value.

Peanut butter and jelly

Butter and margarine

5.

Which pair of goods is likely to have the largest positive cross-price elasticity?

Ramen noodles and a Rolex watch

Cross-price elasticity is always negative, and simply reported in absolute value.

Peanut butter and jelly

Butter and margarine

Answer 1

1. Option A more elastic; the availability of inputs

A baker of chocolate chip cookies is likely to have more elastic supply as it's it's production is dependent upon resources easily available. As the demand increases supply can be increased readily.

Supply is said to be elastic when a given percentage change in price leads to a larger change in quantity supplied.Availability of resources is a factor. If a company depends on an increasingly scarce resource to produce its product, it may be unable to step up production when demand increases. Moreover, the resource will become increasingly expensive, forcing a corresponding increase in the producer's price or decrease in its production, or both.

2. Option D Luxury Good

Since Elasticity is greater than 1, So it is a luxury good.A positive income elasticity of demand is associated with normal goods; an increase in income will lead to a rise in demand. If income elasticity of demand of a commodity is less than 1, it is a necessity good. If the elasticity of demand is greater than 1, it is a luxury good or a superior good.

3.Option C Cross Price Elasticity

The cross elasticity of demand is an economic concept that measures the responsiveness in the quantity demanded of one good when the price for another good changes.

4.Option D Butter and Margarine

Both butter and Margarine are Substitutes.The cross-price elasticity of demand measures the change in demand for one good in response to a change in price of another good.Substitute goods have a positive cross-price elasticity: as the price of one good increases, the demand for the other good increases.

Question 5 is same as 4.