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For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. Explain your answers.

d. Cosmetics.

A) Normal and luxury. As income increases people purchase more cosmetics than before. The elasticity of cosmetics is positive and less than 1.

B) Normal and necessity. As income increases people purchase slightly more cosmetics than before. However, since everyone uses cosmetics, the elasticity is positive and greater than 1.

C) Normal and necessity. As income increases people purchase fewer cosmetics than before. When people have higher incomes they do not have to think about how they look, so they buy fewer cosmetics.

D) Normal and luxury. As income increases people purchase more cosmetics than before. The elasticity of cosmetics is positive and likely greater than 1.

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Paramjeet Chawla
Paramjeet ChawlaLv8
28 Sep 2019
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Related questions

FILL IN THE BLANKS

Demand for this good is (enter inelastic, elastic or unitary elastic) with respect to price.

This is a (enter normal or inferior) good as income elasticity is (enter less than, greater than or equal) zero, and it is a (enter necessity or luxury) good as income elasticity is (enter less than, greater than or equal) one.

Widgets and gadgets are (enter complements or substitutes), because cross-price elasticity is (enter positive or negative). Widgets and gadgets (enter are or are not) good substitutes because cross-price elasticity is (enter less than, greater than or equal) (enter the numerical value).

1) For each of the following goods, state whether it is a normal good, a luxury, a necessity, or an inferior good. (Sugar)<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

a) Inferior. Increases in income lead to less use of sugar. However, rich people do not use much less sugar than poor people, so elasticity is positive but greater than 1.

b) Inferior. Increases in income lead to slightly more use of sugar. However, rich people do not use much more sugar than poor people, so elasticity is positive but less than 1.

c) Normal and necessity. Increases in income lead to slightly more use of sugar. However, rich people do not use much more sugar than poor people, so elasticity is positive and greater than 1.

d) Normal and necessity. Increases in income lead to slightly more use of sugar. However, rich people do not use much more sugar than poor people, so elasticity is positive but less than 1.

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2) A perfectly competitive firm sells its good for $24. If marginal cost is three times the quantity produced, how much does the firm produce? Why?

a) Assuming perfect competition, the firm is producing where MR = MC. If the price is $24, and MC is three times the quantity, it is producing 72 units.

b) Assuming perfect competition, the firm is producing where MC is twice MR. If the price is $24, then MC = $48. This means that the firm is producing 12 units.

c) Assuming perfect competition, we do not have enough information to determine how much the firm is producing.

d) Assuming perfect competition, the firm is producing where MR = MC=P. Since price is $24, MR also is $24. If MC is three times the quantity, it is producing 8 units

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3) State the law of supply.

a) Quantity supplied rises as price increases, other things constant. Quantity supplied falls as price decreases, other things constant.

b) Supply increases as price falls. Supply decreases as price rises.

c) Quantity supplied rises as price falls, other things constant. Quantity supplied falls as price increases, other things constant.

d) Supply increases as price increases. Supply decreases as price decreases

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4) If marginal cost is increasing, what do we know about average cost?

a) If marginal cost is increasing, average costs could be rising, falling, or constant. The direction of average costs depends upon whether marginal cost is higher or lower than average cost.

b) If marginal cost is increasing, average costs are rising. As the cost of the next item produced is rising, the average cost of all the items produced must also be rising.

c) If marginal cost is increasing, average costs are falling. Marginal costs only increase at very high levels of production. When items are mass-produced (because of economies of scale) their average costs always fall, even when marginal costs begin to increase.

d) Average cost is constant and always lower than marginal cost because of the law of decreasing marginal productivity. As more items are produced marginal costs increase (the same as productivity decreasing), but average costs remain constant because the total number of items produced is also increasing

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5) (The president of Lebanon Valley College proposed the following tuition program: provide a 50 percent tuition reduction for those graduating in the top 10 percent of their high school class, 33 percent reduction for those in the top 20 percent, and 25 percent reduction for those in the top 30 percent. All scholarship recipients were also required to maintain a minimum GPA. The comptroller estimated that the elasticity of demand for these students was greater than 1.)

Why did the program distinguish among top-performing students?

A) The program distinguished among top students because they were the least likely to respond to scholarships, keeping expenses related to scholarships down.

B) The program distinguished among top students because the top students demanded greater scholarships. The only way to achieve equilibrium was to supply more scholarships to these students.

C) The program distinguished among top students because their elasticities likely differed. The top 10 percent were likely being offered scholarships at other academic institutions, giving them greater choices, which made their elasticities greater.

D) The program distinguished among top students because their elasticities likely differed. The top 10 percent were likely being offered scholarships at other academic institutions, giving them greater choices, which made their elasticities lower.

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6) Say that equilibrium price fell and quantity remained constant. What would you say was the most likely cause?

a) The supply curve shifted left and the demand curve shifted left.

b) The supply curve shifted right and the demand curve shifted right.

c) The supply curve shifted right and the demand curve shifted left.

d) The supply curve shifted left and the demand curve shifted right.

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7) A firm has just decreased its price by 10 percent over last year's price, and it found that quantity sold decreased 20%. What The firm comes to you and wants to know its price elasticity of demand ?

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8) Name two advantages of the behavioral model.

Select all that apply.

a) They better match observed behavior.

b) Each model depends on a specific context and they are not easily generalized to other contexts.

c) Broader building blocks free researchers to look for more patterns in the data.

d) Irrational behavior results in complicated models that are often difficult to solve.

e) They assume people are rational, which better matches reality.

f) All economists agree the assumptions of the behavioral model are realistic.

1. To establish a market, which of the following are essential?

1. A marketplace or a location

2. Potential buyers

3. An auctioneer

4. Potential sellers

A. 1, 2 and 4

B. 1, 2, 3, and 4

C. 1 only

D. 2 and 4

E. None of the above

 

2. Marketing value is:

A. The share of consumer food expenditures going to farmers

B. The share of consumer food expenditures going only to processors

C. The share of consumer food expenditures going to agribusinesses

D. The share of consumer food expenditures going only to marketers

E. None of the above

 

3. Micropolitan area contains:

A. One urbanized area of at least 10,000 but less than 50,000 people

B. One urbanized area of at least 20,000 but less than 50,000 people

C. One urbanized area of at least 30,000 but less than 50,000 people

D. One urbanized area of at least 40,000 but less than 50,000 people

E. None of the above.

 

4. Which of the following does not belong to  Maslow's hierarchy of needs?

A. Self-actualization

B. Political views

C. Esteem

D. Love/belonging

E. Physiological

 

5. The process of identifying and focusing on target submarkets is known as:

A. Market collusion

B. Market targeting

C. Market segmentation

D. Market development

E. None of the above

 

6. Given the following information concerning elasticities for bubble gum:

Own-price elasticity of demand = -0.3

Own-price elasticity of supply = 1.7

Income elasticity = 0.6

Cross-price elasticity concerning chewing gum = -1.5,

then bubble gum demand is ___ and it is a ___ good.

A.Unitary elastic; inferior

B.Inelastic; inferior

C. Elastic; inferior

D. Inelastic; normal

E. Elastic; normal

 

7. The cross-price elasticity for peanut butter demand with respect to the price of jelly is equal to -0.8. If the price of jelly decreases by 10%, the consumption of peanut butter will:

A. Decrease by 8%

B. Decrease by 1.25%

C. Increase by 1.25%

D. Increase by 8%

E. None of the above

 

8. The percentage change in quantity demanded of a commodity or product given a 1% change in income is captured by:

A. Own-price elasticity of demand

B. Cross-price elasticity

C. Own-price flexibility

D. Own-price elasticity of supply

E. Income elasticity

 

9. The most important determinant of supply elasticity is:

A. Length of time

B. Degree of substitutability

C. Degree of complementarity

D. Importance in the budget

E. Luxury versus necessity

 

10. Assume that a retailer sells 2,000 six-packs of Pepsi per day at a price of $3.00 per six-pack. Also, assume the cross-price elasticity for Pepsi with respect to the price of Coca Cola is 0.5. If the price of Coca Cola rises by 10 percent, what will be the new quantity of six-packs sold by Pepsi?

A. 1,000

B. 2,100

C. 2,400

D. 12,000

E. None of the above

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