Questions for Review before Quiz One 1. The cross elasticity of demand between t

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Questions for Review before Quiz One 1. The cross elasticity of demand between two goods is reported to be +0.2. This implies that: a2% increase in the price of one shifts the demand curve for the other to the left by 1%, b. the two goods are complements. c. the two goods are substitutes. d. both goods are normal goods. 2. Suppose thata 2% increase in income in the economy decreases the quantity of gadgets demanded by 1% at every possible price. This implies that: a. the supply of gadgets is elastic good. c. income elasticity is negative and gadgets are a normal good.d. income elasticity is negative and gadgets are an Inferior good. b. income elasticity is positive and gadgets are a normal 3. PlayStation 3 and XBOX 360 are substitutes. If the price of PlayStation 3 increases what wil happen to the quantity demanded for XBOX 360? a. The quantity demand for XBOX 360 will decrease c. The quantity demand for XBOX 360 will increase b. The quantity demand for XBOX 360 will not change 4. Milk and chocolate chip cookies are complementary goods. If the price of milk decreases what will happen to the quantity demanded for chocolate chip cookies? a. The quantity demand for cookies will decrease b. The quantity demand for cookies will not change c. The quantity demand for cookies will increase d. None of the abowe 5. Demand is when a change in price leads to a relatively larger change in the quantity demanded. On the other hand, demand iswhen a change in price leads to a relatively smaller change in the quantity demanded. a. increasing: decreasing b decreasing: increasing c. elastic, inelastic d. inelastic;, elastic 6. If the State of Oregon imposed a $0.02 per kilowatt tax on electricity in order to fund restoration of salmon habitat harmed by hydroelectric dams, and if the price elasticity of demand for electricity in Oregon is 0.05, then are producers or consumers most likely to bear the greater burden of this tax? a. Producers. b. Consumers c. both consumers and producers d. None of the above 7. A product that has lots of competition is likely to be price elastic. a. True b. False 8. The situation in which there is not enough of something to satisfy all desires for that thing is called: a. abundance b. Scarcity c. demand d. plethora 9. The situation in which limited resources are being used most effectively is called a. Efficient b. economid c. abundant d. scarce. 10. The study of the behavior of firms, individual markets, and households is called: a. normative economics b. positive economics c macroeconomics d. microeconomics 11. The study of the behavior of the overall economy is called: a. normative economics b. positive economics c.macroeconomics d. microeconomics 12. The extreme case of a market economy is one in which government does not intervene in economic decisions. T kind of market economy is called a a. command market b. mixed c. Weak d. laissez-faire 13. The three broad categories of inputs to production are: a.earth, wind, and fire b. earth, water, and fire c. land, labor, and capital d. land, labor, and money 14. Th of a decision is the value of the good or service forgone. a. Opportunity Cost b. efficiency c. economics d. scarcity

Explanation / Answer

1.

Option C: A positive cross elasticity denotes that the two goods are substitutes

2.

Option D: Since increase in income reduces the demand, the income elasticity is negative. Also income elasticity is positive for normal goods and negative for inferior goods

3.

Option C: Since both are substitutes the increase in price of play station 2 will decrease its demand and increase the demand of XBox 360

4.

Option C : Since both are complimentary goods the decrease in price of milk will increase its demand and increase in demand for mil will increase the demand of chip cookies.

5.

Option C: Elasticity is a measure of change in demand relative to price and high elasticity represents change in price will change the demand

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