Give an example of cross-price elasticity of demand that involves a substitute and another that involves a complement. Calculate a sample cross-price elasticity of demand for each.
What will be an ideal response?
Examples will vary but should show a thorough understanding of how cross-price elasticity of demand relates to substitutes and complements. For example, the price for orange juice could increase by 5 percent, causing an increase in demand for apple juice of 10 percent. The resulting cross-price elasticity of demand is +2 (+10% ¸ +5% = +2%). The goods are substitutes because the price of one good and the demand for the other move in the same direction. The price for tennis racquets could decrease by 7 percent causing an increase in demand for tennis balls of 21 percent. The resulting cross-price elasticity of demand is –3 (+21% ¸ –7% = –3). The goods are complements because the price of one good and the demand for the other move in opposite directions.
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Why might a young, healthy person choose not to buy health insurance?
What will be an ideal response?
The Index of Economic Freedom measures: a. market orientation
b. market concentration. c. price elasticity. d. market power.
When Milton Friedman said that "inflation is always and everywhere a monetary phenomenon," he was referring to
A) one-shot inflation. B) continued inflation. C) a and b D) neither a nor b
When the unemployment rate falls to the full-employment level:
A. There is increased concern about inflation. B. Many resources are idle. C. The size of the labor force decreases. D. There is increased concern about deflation.