Elasticity Concepts Quiz

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Which variable does income elasticity of demand measure the sensitivity of?

Other variables

Quantity demanded (correct)

Consumer income

Price

What is the formula for income elasticity of demand?

EI_d = %ΔQx_d / %ΔI (correct)

EI_d = %ΔQx_d * %ΔI

EI_d = %ΔQx_d - %ΔI

EI_d = %ΔQx_d + %ΔI

What does a positive income elasticity of demand indicate?

Quantity demanded increases as income increases (correct)

Quantity demanded is not affected by changes in income

Quantity demanded is affected by changes in other variables

Quantity demanded decreases as income increases

What does a negative income elasticity of demand indicate?

Quantity demanded decreases as income increases Signup and view all the answers

What type of goods have positive income elasticity?

Normal goods Signup and view all the answers

What type of goods have negative income elasticity?

Inferior goods Signup and view all the answers

How does a rise in income affect the demand curve for normal goods?

Shifts the demand curve upward and to the right Signup and view all the answers

Which of the following equations represents the cross-price elasticity of demand?

$E_{pyd} = % \Delta Q_x / % \Delta P_y$ Signup and view all the answers

When the cross-price elasticity of demand between two goods is positive, they are considered as:

Substitutes Signup and view all the answers

When the cross-price elasticity of demand between two goods is negative, they are considered as:

Complements Signup and view all the answers

What does the market demand function represent?

The sum of individual consumers' demand functions Signup and view all the answers

To calculate the quantity demanded using the market demand function, what values do we need to insert?

Actual values for Px, I, and Py Signup and view all the answers

What is the formula for calculating the own-price elasticity of demand?

$E_{pxd} = % \Delta Q_x / % \Delta P_x$ Signup and view all the answers

What does a positive own-price elasticity of demand indicate?

Elastic demand Signup and view all the answers

According to the text, what is the own-price elasticity of demand for gasoline at a price of €1.48?

-0.20% Signup and view all the answers

Based on the information provided, how would you characterize the demand for gasoline at a price of €1.48?

Inelastic Signup and view all the answers

According to the text, what is the income elasticity of demand for gasoline?

0.26% Signup and view all the answers

Based on the information provided, how would you characterize gasoline as a good?

Normal good Signup and view all the answers

According to the text, what is the cross-price elasticity of demand between gasoline and automobiles?

-0.84 Signup and view all the answers

Based on the information provided, how would you characterize the relationship between gasoline and automobiles?

Complements Signup and view all the answers

According to the text, what is the law of demand?

An increase in price leads to a decrease in quantity demanded Signup and view all the answers

Which of the following best describes the income effect for normal goods?

Consumers buy less of the good when their income rises Signup and view all the answers

Which of the following best describes the income effect for inferior goods?

Consumers buy more of the good when their income rises Signup and view all the answers

Which of the following best describes the substitution effect for normal goods?

Consumers buy more of the good when its price falls Signup and view all the answers

Which of the following best describes the substitution effect for inferior goods?

Consumers buy less of the good when its price falls Signup and view all the answers

Which of the following best describes the income elasticity of demand for normal goods?

Positive Signup and view all the answers

Which of the following best describes the income elasticity of demand for inferior goods?

Negative Signup and view all the answers

Which of the following best describes the relationship between income and demand for normal goods?

Direct Signup and view all the answers

Which of the following best describes the relationship between income and demand for inferior goods?

Inverse Signup and view all the answers

Which of the following best describes the demand curve for normal goods?

Negatively sloped Signup and view all the answers