Question

As the elasticity of supply becomes more elastic, the supply curve:

a	shifts to the right
b	doesn’t change
c	becomes more horizontal
d	becomes more vertical

The cross price elasticity of demand for hamburger and a mystery good is -0.95. The mystery good is most likely:

a	french fries (a compliment)
b	a chicken sandwich (a substitute)
c	a vacation home in Florida (an unrelated good)
d	generic brand aspirin (an inferior good)

Susan typically sells 500 cakes per day at her bakery for $6 each. When she raised the price of a cake to $12, she saw sales decrease to 300 cakes per day. Using the Arc/Midpoint method, calculate her elasticity of demand.

a	-0.75
b	-1.25
c	-2.25
d	none of the above

Answer 1

Q1.

c. becomes more horizontal

Explanation :

Perfectly elastic supply curve is horizontal. And perfectly inelastic supply curve is vertical. So when supply curve becomes more elastic it becomes more horizontal.

Q2.

a. french fries (a compliment).

Explanation :

When cross price elasticity of demand is negative, two goods are complement.

When cross price elasticity of demand is positive two goods are substitute.

Q3.

a. -0.75

Explanation :

Price elasticity of demand =[Q2-Q1) /(Q2+Q1) /2] ÷[(P2-P1) /(P2+P1) /2]

=[(300-500)/(300+500)/2]÷[(12-6)/(12+6)/2]

=[-200/400]÷[6/9]

=[-0.5/0.67]

=-0.75