49 of 20 (6 This Quiz: 20 pts ste, during the last three months of 2014, gasolin
ID: 1159057 • Letter: 4
Question
49 of 20 (6 This Quiz: 20 pts ste, during the last three months of 2014, gasoline prices dropped 33 percent at the same time as [Related to the Chapter Opener] According to an aricle on the Boaton Globe's Web more transit options ssociation, a group that lobbies Congress in behalf of public tranailt systems, Iven with gas prices dropping lke a rock, the public is sill demanding a. Gasoline and rides on mass transit are O A subettutes because the cross-price elasticty of demand is positive ??.-bstutes because tecross-price ealdty of demand s neprive O c. elasticity of demand is negative O D. complements because he cross-price elaciy of demand is positive. soring t, pered the unemployment rie wa. dering, te ne-, stry also rekend te observado."Ahmproving ecoomy means more people need ? get to work . Given ths observaton, O A. we can no longer be sure of the value of the cross-price elastioity of demand between gasoline and rides on majs transt O B. the asicity of demand between gasoline and rides on mass transit is ikely to be more negative O C. the cross-price elasticty of demand between gasoline and lides on mass transit i lkely to be zero O D. the cross-price elasticity of demand between gasoline and rides on mass transit is kely to be positve. MacBook AirExplanation / Answer
Cross price elasticity of demand: Cross price elasticity of demand measures the responsiveness of the demand for a goods towards the change in the price of related good. It is always measured in percentage terms.
Answer: Option C. complements because the cross price elasticity of demand is negative.
Explanation: Cross elasticity of demand for demand for rides on mass transit and price of gasoline, ES, P = % change in demand for mass transit/ % change in price of gasoline.
As demand for rides on mass transit is increasing it will be positive and price of gasoline is decreasing it will be negative.
EM, G =1/-33
=- 0.0303%
As the cross price elasticity is negative that means both are complements and decrease in price of one good will increase the demand of other goods.
Answer: Option B. The cross price elasticity between demand for rides on mass transit and price of gasoline is likely to be more negative.
Explanation: If more people need to get to work, then the demand for rides on mass transit will increase. This increase in demand for rides on mass transit will increase the cross price elasticity between demand for rides on mass transit and price of gasoline but in negative terms. So, cross price elasticity between demand for rides on mass transit and price of gasoline is likely to be more negative.
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