Question

Higher input costs

a	always happen during a recession.

b	provide an incentive to hire more workers.

c	shift the demand curve.

d	increase profits.

e	reduce profits.

Which one of the following pairs of goods is likely to have a positive cross-price elasticity of demand?

a	potatoes and sausage

b	butter and toast

c	fruit and bacon

d	milk and coffee

e	pancakes and waffles

In a typical demand curve, the price elastic portion of demand is found in the ________ region and the price inelastic portion of demand is found in the ________ region of the graph.

a	None of these choices are correct.

b	middle; middle

c	middle; lower

d	lower; upper

e	upper; lower

Refer to the accompanying table. When the price drops from $5 to $3, price elasticity of demand for sushi (using the midpoint method) at an income of $30,000 is

Price (per roll)	Quantity Demanded (income = $10,000/year)	Quantity Demanded (income = $30,000/year)
$1	5	9
$2	4	8
$3	3	7
$4	2	6
$5	1	5

a

0.33.

b

− 0.67.

c

0.10.

d

0.71.

e

0.67.

Answer 1

1. Higher input costs reduce profits.

Ans is e) reduce profits

When the input cost increases it leads to increase the cost of production therefore reduce profit.

2. Which one of the following pairs of goods is likely to have a positive cross-price elasticity of demand?

Ans is e) Pancakes and waffles.

A positive cross-price elasticity value indicates that the two goods are substitutes. So here the only substitute pair is  Pancakes and waffles.

3. In a typical demand curve, the price elastic portion of demand is found in the upper region and the price inelastic portion of demand is found in the lower region of the graph.

Ans is e) upper; lower

4.  Refer to the accompanying table. When the price drops from $5 to $3, price elasticity of demand for sushi (using the midpoint method) at an income of $30,000 is -0.67

Ans is b) -0.67

mid point elasticity

% change in Q = [(7-5) / ((7+5) /2)] = 2/6 = 33.33%

% change in P = [(3-5) / ((3 +5)/2)] = - 2/4 = - 50%

e = 33.33% / - 50% = -0.67