BR6B: Bridge: Other Elasticities
Question 1
Frank recently lost his job as a photo lab technician. While he searches for a new occupation, his spaghetti purchases increase. For Frank, spaghetti is
A. a normal good.
B. an inferior good.
C. a superior good.
D. an exceptional good.
Hint
A normal good has an income elasticity of demand between zero and 1; an inferior good has an income elasticity of demand below zero; and a superior good has an income elasticity of demand greater than 1.Answer
B. an inferior good. An inferior good is a good for which demand falls when income rises. In other words, it is a good with a negative income elasticity of demand. Having lost his job, Frank undoubtedly has less income. The fact that he now buys more, rather than less, spaghetti implies that, for Frank, spaghetti is an inferior good.Question 2
For most automobile manufacturers, what happens to the elasticity of supply over time?
A. It falls to zero.
B. It decreases.
C. It never changes.
D. It increases.
Hint
The elasticity of supply is a measure of producers' responsiveness to changes in the market price of a good.Answer
D. It increases. The price elasticity of supply—the responsiveness of producers to changes in price—generally rises over time. If the price of an automobile rises, producers can refine their production processes, hire and train new workers, and reallocate resources to more adequately address production needs. The longer the time period involved, the greater these adjustments will likely be. Thus, the long-run price elasticity of supply is generally higher than the short-run price elasticity of supply.Quesiton 3
If an Aspen ski lodge doubles its room rates, what is likely to happen to the demand for lift tickets sold by the lodge?
A. Demand for lift tickets, a complement good, will fall.
B. Demand for lift tickets, a substitute good, will fall.
C. Demand for lift tickets, a complement good, will rise.
D. Demand for lift tickets, a substitute good, will rise.
Hint
Complementary goods are items that are consumed together. Substitute goods are items that can be used in place of one another.Answer
A. Demand for lift tickets, a complement good, will fall. Since patrons at an Aspen lodge are likely there to ski, visitors will purchase lift tickets when staying at the hotel, making the two goods complementary. Thus, if room rates double, the quantity of rooms rented will fall, as will the demand for lift tickets.Question 4
Suppose that Michael’s Bowling Alley offers 50% off bowling on Mondays, and as a result, drink sales increase by 40%. What is the cross elasticity of demand between bowling and drinks?
A. 0.80
B. -0.80
C. -1.25
D. 1.25
Hint
Cross elasticity of demand measures how responsive the quantity demanded of one good is to a change in price of another good.Answer
B. -0.80 Cross elasticity of demand between bowling and drinks is calculated by taking the ratio of percentage change in quantity demanded of drinks (40%) to percentage change in price of Michael’s Bowling Alley (-50%), which equals -0.80.$\frac{40\%}{-50\%}=-0.80$
Question 5
Christine recently earned a promotion at work, raising her income by 40%. As a result, she now attends twice as many concerts as before. What is Christine’s income elasticity of demand for concerts?
A. 1.00
B. 0.40
C. 2.50
D. -0.40
Hint
Income elasticity of demand measures how responsive the quantity demanded of one good is to a change in income.Answer
C. 2.50 Christine’s income elasticity of demand for concerts is calculated by taking the ratio of percentage change in quantity demanded for concerts (100%) to percentage change in Christine’s income (40%).$\frac{100\% }{40\% } = 2.5$