Mod 2.5: Cross-Price Elasticity and Income Elasticity

The cross-price elasticity of demand measures:

• the effect that a change in one good’s quantity on the quantity of another good.

• the effect that a change in demand has on the slope of the demand curve.

• the effect that the quantity supplied of one good has on the demand for another good.

• the effect of the change in one good’s supply on the quantity demanded of another good.

• the effect of the change in one good’s price on the quantity demanded of another good.

Income elasticity of demand for an inferior good is:

• negative

• positive

• zero

• greater than 1

• less than one

James buys less cereal when the price of milk increases. For James, milk and cereal are:

• substitutes

• complements

• inferior

• normal

• inelastic

If cookies and brownies are substitutes, which of the following is true?

• Their income elasticity is negative.

• Their price elasticity of demand is negative.

• Their price elasticity of demand is positive.

• Their cross-price elasticity is negative.

• Their cross price elasticity is positive.

If a 10% increase in income causes a 10% decrease in the the quantity demanded for ramen then ramen is:

• a substitute

• a complement

• a normal good

• an inferior good

• income inelastic