20) If the demand for good Z is perfectly inelastic, the demand curve is 20) ______
A) indeterminate, as information is not sufficient.
B) upward sloping.
C) downward sloping.
21) Which one of the following must be true if demand is income elastic? 21) ______
A) An increase in income will cause a decline in quantity demanded.
B) A percentage change in price will lead to a larger percentage change in quantity
C) A small percentage increase in income will result in a large percentage increase in quantity
D) A large percentage increase in income will result in a small percentage increase in quantity
E) The good must be inferior.
22) Fred's income has just risen from $800 per week to $1,200 per week. As a result, he decides to
purchase 40 percent more bubble gum per week. The income elasticity of Fred's demand for
bubble gum is
A) 0.12. B) 10. C) 0.40. D) 40. E) 1.0.
23) If the cross elasticity of demand between goods A and B is positive, then 23) ______
A) the demands for A and B are both price inelastic.
B) the demands for A and B are both price elastic.
C) A and B are substitutes.
D) A and B are complements.
E) A and B are independent from each other.
24) If a rise in the price of good A from $9 to $11 results in an increase from 9,500 to 10,500 units
A) supply is unit elastic. B) demand is elastic.
C) supply is elastic. D) supply is inelastic.
25) Business people speak about cross elasticity of demand without using the actual term. Which
one of the following statements reflects cross elasticity of demand?
A) "I don't think a price cut will make any difference to my bottom line. What I may gain from
selling more I would lose on the lower price."
B) "My customers are real bargain hunters. Since I set my prices just a few cents below my
competitors, customers have flocked to the store and sales are booming."
C) "Since the price of gasoline fell at the neighbouring station, my milk sales have been
D) "With the recent economic recovery, people have more income to spend and sales are
booming, even at the previous prices."
E) "A price cut won't help me. It won't increase sales, and I'll just get less money for each