2.5-2.6

A decrease in the demand for antique lanterns, a normal good, would be caused by which of the following?

• An increase in consumers’ incomes

• An increase in the price of antique lanterns

• An increase in the expected price of antique lanterns in the future

• An increase in the price of electric lanterns, a substitute good

• An increase in the price of lamp oil, a complementary good

Apples are produced in a perfectly competitive market with no government intervention. Which of the following price changes will cause the total economic surplus to increase for the apple market depicted in the graph provided?

• A decrease in price from $8 to $6

• A decrease in price from $6 to $4

• A decrease in price from $6 to $0

• An increase in price from $6 to $8

• An increase in price from $8 to $12

If a 10 percent increase in the price of good X results in a 20 percent decrease in the quantity of good Y demanded, which of the following is true?

• Good X and good Y are complementary goods, and the cross-price elasticity is −0.5.

• Good X and good Y are substitute goods, and the income elasticity is +2.

• Good X and good Y are complementary goods, and the cross-price elasticity is −2.

• Good X and good Y are normal goods, and the income elasticity is +2.

• Good X and good Y are substitute goods, and the cross-price elasticity is −2.

Based on the graph above, the consumer surplus at the market equilibrium price and quantity is shown by which area?

• GMK

• GMN

• GZN

• ZMN

• MNK

The difference between the price a consumer would be willing to pay for a cone of ice cream and the actual market price that she pays gives a measure of her

• consumer surplus

• producer surplus

• marginal utility

• marginal cost

• ability to pay

In a competition equilibrium consumer surplus is the area of

• UVZ

• WYZ

• RVUT

• XVZY

• 0YZS

Assume that a 2 percent increase in the price of bologna causes a 5 percent decrease in the demand for cheese. What is the cross-price elasticity of demand between the two goods, and how are these goods related?

• Cross-price elasticity of demand equals −0.4, and these goods are complements.

• Cross-price elasticity of demand equals +0.4, and these goods are substitutes.

• Cross-price elasticity of demand equals −2.5, and these goods are complements.

• Cross-price elasticity of demand equals +2.5, and these goods are substitutes.

• Cross-price elasticity of demand equals −0.4, and these goods are substitutes.

The cross-price elasticity of demand between goods J and K is −3. A 20 percent decrease in the price of good K will result in a

• 3 percent decrease in the quantity demanded of good K

• 15 percent decrease in the quantity demanded of good K

• 6 percent increase in the quantity demanded of good J

• 12 percent increase in the quantity demanded of good J

• 60 percent increase in the quantity demanded of good J

The cross-price elasticity of demand for Goods X and Y is −2.8. Based on this information, what is true about Good X and Good Y?

• Good X is a normal good and Good Y is an inferior good.

• The goods are inferior.

• The goods are substitutes.

• The goods are complements.

• The goods have upward-sloping demand curves.

Which of the following is true of the cross-price elasticity of demand?

• It can indicate if a good is a necessity or a luxury.

• It is greater than zero for two goods that are substitutes.

• It is close to zero if the two goods are closely related.

• It is always negative because demand curves are downward sloping.

• It increases as income increases.