Question

1.2 If we were to say that two variables are positively related, this means that:

a) The relationship between the two would graph as a line sloping downward.

b) The relationship between the two would graph as a horizontal line.

c) The relationship between the two would graph as a line sloping upward.

d) The relationship between the two cannot be depicted graphically in any simple way.

1.3 If there is an increase in the price of red meat, a substitute in production for milk, then:

a) The supply of milk will increase.

b) The demand for milk will decrease.

c) The supply of milk will decrease.

d) There will be a movement along the supply curve for milk.

1.4 In the market for air travel, which of the following variables would decrease demand, ceteris paribus?

a) An increase in rental rates for hired cars, a substitute.

b) A rise in income of tourists.

c) A rise in the price of air travel.

d) A rise in the price of hotel accommodation, a complement.

1.5 If the cross elasticity of demand between tablets and smart phones is 2,0, this implies that these goods are:

a) Luxuries.

b) Complements.

c) Necessities.

d) Substitutes.

1.6 Nonjabulo thinks that McDonald’s hamburgers are the best – much better than Steers’ – while Anne cannot tell the difference:

a) Anne’s demand for McDonald’s hamburgers is likely to be more price elastic than Nonjabulo’s.

b) Nonjabulo’s demand for McDonald’s hamburgers is likely to be more price elastic than Anne’s.

c) Anne’s demand for all hamburgers is less price elastic than Nonjabulo’s.

d) Nonjabulo’s demand for all hamburgers is more price elastic than Anne’s

Answer 1

Answer : 1.2) The correct option is c.

Two variables positively raleted means if the value of one variable increase then the value of another one also increase and vise versa. Only an upward sloping line in graph shows the positive relationship between two variables.

1.3) The correct option is c.

Because price level is positively related to the production level. As red meat and milk are substitute products to each other and the price of red meat increase , then suppliers supply more red meat to earn maximum profit which lead to decrease the market supply of substitute good, milk.

1.4) The correct option is c.

There is a negative relationship between price and demand. As price rises for air travel, the demand falls and ceteris paribus.

1.5) The correct option is d.

If cross price elasticity of demand is positive for two goods then the goods are substitutes. According to the given information, as tablets and smart phones are positively raleted with each other by the cross price elasticity of demand, both are substitute goods.