I. Multiple choice. Encircle the correct answer. 1. If the income elasticity of a demand for a good is negative, then the good is a. normal good b. inferior good c. luxury good d. necessity 2. If the cross elasticity of demand between two goods is negative, then the two goods are: a. normal good b. inferior good c. luxury good d. necessity 3. Tennis racquets and tennis balls are likely to have a positive cross elasticity of demand. a. true b. false 4. Price elasticity of demand a. responsiveness of demand to changes in the price of some other product. b. responsiveness of demand for a product to changes in its own price. c. increase in real income may cause demand to fall. d. responsiveness of demand for a product to changes in consumer income. 5. Cross-elasticity of demand a. responsiveness of demand to changes in the price of some other product. b. responsiveness of demand for a product to changes in its own price. c. increase in real income may cause demand to fall. d. responsiveness of demand for a product to changes in consumer income. 6. Income elasticity a. responsiveness of demand to changes in the price of some other product. b. responsiveness of demand for a product to changes in its own price. c. increase in real income may cause demand to fall. d. responsiveness of demand for a product to changes in consumer income. 7. Inferior good a. responsiveness of demand to changes in the price of some other product. b. responsiveness of demand for a product to changes in its own price. c. increase in real income may cause demand to fall. d. responsiveness of demand for a product to changes in consumer income. 8. Which of the following goods would you expect to have the largest income elasticity of demand? a. Rice b. Toothpaste c. Beer d. Stereo equipment 9. The price elasticity of demand equals a. the percentage change in the quantity demanded divided by the percentage change in the price. b. the change in the quantity demanded divided by the change in price. c. the percentage change in the price divided by the percentage change in the quantity demanded. d. the change in the price divided by the change in quantity demanded. 10. What kind of demand does salt has? a. elastic b. inelastic c. unitary d. perfectly elastic II. Compute Price elasticity, Income and Cross Elasticity. ( Show complete solution) 1. Suppose that the quantity of root beer demanded declines from 103,000 gallons per week to 97,000 gallons per week as a consequence of a 12 percent increase in the price of root beer from $27. The price elasticity of demand is 2. When demand for a product goes from 100 to 200 and income goes up from $40,000 to $45,000 what is the income elasticity of demand? 3. The price of Good X increase from P100 to P150, the quantity demanded for Good Y decreased from 50 to 35