Question

Question 23 (1 point) Last month, sellers of good Y took in $150 and sold 50 units of good Y. This month sellers of good Y raised their price, took in $160 and sold 40 units of good Y. At the same time, the price of good X stayed the same, but sales of good X increased from 20 units to 40 units. What can we conclude about goods X and Y? They are substitutes and have a cross-price elasticity of 0.43. They are complements and have a cross-price elasticity of 0.43. They are substitutes and have a cross-price elasticity of 2.33. They are complements and have a cross-price elasticity of 2.33. Question 24 (1 point) What happens when society requires that firms reduce pollution? There is a tradeoff because of reduced incomes to the firms' owners, workers, and customers. There is no tradeoff, since everyone benefits from reduced pollution. There is no tradeoff for society as a whole because the cost of reducing pollution falls only on the firms affected by the requirements. There is a tradeoff only if some firms are forced to close. Question 25 (1 point) Suppose that 100 candy bars are demanded at a particular price. If the price of candy bars rises by 4 percent, the number of candy bars demanded falls to 92 candy bars. According to the midpoint method, what does this mean? The demand for candy bars in this price range is elastic. The demand for candy bars in this price range is inelastic. The price elasticity of demand for candy bars is 0. The demand for candy bars is unit elastic. Question 26 (1 point) If an externality is present in a market, what may enhance economic efficiency? government intervention O more defined property rights better informed market participants increased competition

Answer 1

23) Third option. Price increased from 150/50 = $3 to 160/40 = $4 for Y and quantity increased for X from 20 to 40. Midpoint elasticity is positive 2.33 which means they are substitutes

Use Ed = (Q2 – Q1) / [(Q2 + Q1)/2] / (P2 – P1) / [(P2 + P1)/2]

Q1	Q2	P1	P2	Q2-Q1	(Q2+Q1)/2	%Q	P2-P1	(P1+P2)/2	%P	Ed
20.00	40.00	3.00	4.00	20.00	30.00	66.67	1.00	3.50	28.57	2.33

24) First option. To reduce pollution, cost increases which raises the price and reduces income of workers. Consumers are also hurt.

25) First option. Price change is 4% and quantity change (average) is 8.33%. Hence elasticity is 8.33/4 = 2.08 which is greater than 1.

26) First option