Question

12) The cross-price elasticity of demand for coffee and tea is likely to be

A) greater than zero.

B) less than zero.

C) zero.

D) infinity.

13) The cross-price elasticity of demand for coffee and coffee-cream is likely to be

A) greater than zero.

B) less than zero.

C) zero.

D) infinity.

14) The cross-price elasticity of demand for coffee and caskets is likely to be

A) less than zero.

B) greater than zero.

C) zero.

D) infinity.

15) When purchases of tennis socks decline following an increase in the price of tennis sneakers (other things remaining equal), the relationship between these two items can be described as

A) substitutable.

B) complementary.

C) unique.

D) ordinary.

16) The owner of a produce store found that when the price of a head of lettuce was raised from 50 cents to $1, the quantity sold per hour fell from 18 to 8. The arc elasticity of demand for lettuce is

A) -0.56.

B) -1.15.

C) -0.8.

D) -1.57.

17) Suppose the price of crude oil drops from $150 a barrel to $120 a barrel. The quantity bought remains unchanged at 100 barrels. The coefficient of price elasticity of demand in this example would be

A) -0.5.

B) infinity.

C) -1.0.

D) 0.

18) If a firm decreases the price of a good and total revenue decreases, then

A) the demand for this good is price elastic.

B) the demand for this good is price inelastic.

C) the cross elasticity is negative.

D) the income elasticity is less than 1.

19) When total revenue reaches its peak (elasticity equals 1), marginal revenue reaches

A) 1.

B) zero.

C) -1.

D) Cannot be determined from the information provided

20) If the income elasticity of a particular good is negative 0.2, it would be considered

A) a superior good.

B) a normal good.

C) an inferior good.

D) an elastic good.

Answer 1

12).

“Coffee” and “Tea” are substitute to each other, => “cross price elasticity” must be positive, => the correct answer is “A”.

13).

We consume “coffee” and “coffee cream” together, => they are complement to each other, => the cross price elasticity is negative, => the correct option is “B”.

14).

Now, “coffee” and “caskets” are completely uncorrelated, => the cross price elasticity is “0”, => the correct answer is “C”.

15).

As the price of “tennis sneaker” increases implied the purchase of “tennis socks” decline, => there is a negative relationship between “price of tennis sneaker” and “tennis socks”, => they are complement to each other, => the correct option is “B”.

16).

SO, here the price of head of lettuce raises from “0.5” to “1”, => the price elasticity is given by.

=> e = (dQ/dP)*(P/Q) = (-10/0.5)*(0.5/18) = (-0.56). So, here the correct answer is “A”.

17).

Now, suppose the price of crude oil decline from “$150” to “$120” but the quantity demanded remain same, => “dQ=0”, => “ep=0”, => the correct answer is “D”.

18).

Now, as “TR” is the product of “P” and “Q”. Now, on the elastic portion of the demand curve “% change Q” is more than “% change in P”, => “TR” will increase as “P” decreases. Now, on the inelastic portion of the demand curve “% change Q” is less than “% change in P”, => “TR” will decrease as “P” decreases.

=> the correct option is “B”.

19).

“MR” is the change of “TR”, => “TR” will be maximum when “MR=0”, => the correct answer is “B”.

20).

The income elasticity of a good is negative if the good is inferior, => here the correct option is “C”.