3.1.2.2 XED NOTES

What does the cross elasticity of demand measure?

• The responsiveness of the quantity demanded for a good to a change in the price of the same good.

• The responsiveness of the quantity demanded for a good to a change in the price of another good.

• The responsiveness of the price of a good to a change in the quantity demanded.

• The responsiveness of the price of a good to a change in the quantity supplied of the same good.

If two goods are substitutes, what would you expect their cross elasticity of demand to be?

• Negative

• Zero

• Positive

• Infinite

If two goods are complements, what would you expect their cross elasticity of demand to be?

• Positive

• Negative

• Zero

• Infinite

Which of the following factors does NOT influence the cross elasticity of demand?

• The closeness of substitutes

• The proportion of income spent on the good

• The time period considered

• The elasticity of supply for the good

What would a cross elasticity of demand equal to zero imply?

• The goods are perfect substitutes.

• The goods are perfect complements.

• The goods are unrelated.

• The goods are normal goods.

Which of the following is likely to have a high positive cross elasticity of demand?

• Tea and coffee

• Cars and gasoline

• Printers and ink cartridges

• Bread and butter

What does a high negative cross elasticity of demand indicate about two goods?

• They are luxury goods.

• They are inferior goods.

• They are complementary goods.

• They are substitute goods.

How would the cross elasticity of demand between two brands of a product (e.g., two different brands of smartphones) typically be characterized?

• Negative

• Zero

• Positive

• Infinite

Which scenario exemplifies a high cross elasticity of demand?

• A decrease in the price of diesel leads to an increase in the demand for diesel cars.

• An increase in the price of movie tickets leads to a decrease in the demand for popcorn at the cinema.

• A decrease in the price of sugar leads to an increase in the demand for coffee.

• An increase in the price of laptops leads to a decrease in the demand for desktop computers.

What role does the availability of substitutes play in determining the cross elasticity of demand between two goods?

• It has no effect.

• It decreases the cross elasticity.

• It increases the cross elasticity.

• It makes the cross elasticity negative.