Mankiw Chapter 5 Yoda Quiz

Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. It indicates how sensitive consumers are to changes in price, and whether a change in price will result in a significant change in quantity demanded. A higher price elasticity of demand suggests that consumers are more responsive to price changes, while a lower elasticity suggests that consumers are less responsive.

The answer is "Remain the Same" because the elasticity of demand is zero. This means that a change in price does not affect the quantity demanded. Regardless of whether the price increases or decreases, the quantity demanded remains constant.

If a good is a necessity, the demand for the good would be rather inelastic. This means that even if there is a change in price, the demand for the good will not change significantly. Necessities are essential items that people need regardless of the price, such as food, water, and basic healthcare. People are willing to pay whatever price is necessary to obtain these goods, so their demand remains relatively constant. Therefore, the demand for a necessity is generally inelastic.

Unit elastic demand refers to a situation where the quantity demanded changes proportionately to price changes. This means that a certain percentage change in price will result in an equal percentage change in quantity demanded. In other words, the demand is neither elastic (where a small change in price leads to a large change in quantity demanded) nor inelastic (where a change in price has a relatively small effect on quantity demanded). Instead, the demand is exactly proportional to price changes, resulting in a unit elastic demand.

As time goes by, the elasticity of demand for many goods would become more elastic. This means that the percentage change in quantity demanded would be greater than the percentage change in price. This could be due to various factors such as the availability of substitute goods, changes in consumer preferences, or the presence of more competitors in the market. As consumers have more options and alternatives, they become more responsive to price changes, making the demand more elastic.

Cross-Price Elasticity of Demand is a measure of how much the quantity demanded of one good responds to a change in the price of another good. It indicates whether the two goods are substitutes or complements. A positive cross-price elasticity suggests that the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the quantity demanded of the other good. On the other hand, a negative cross-price elasticity suggests that the goods are complements, meaning that an increase in the price of one good leads to a decrease in the quantity demanded of the other good.

The cross-price elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. In this case, the price of hamburgers increased by 8% and the quantity demanded of hot dogs increased by 10%. A positive cross-price elasticity indicates that the goods are substitutes, meaning that an increase in the price of one good leads to an increase in the demand for the other good. The correct answer is 5/4, Substitutes, because a 10% increase in the quantity demanded of hot dogs is greater than the 8% increase in the price of hamburgers, resulting in a cross-price elasticity greater than 1.

When the supply of oil falls, the quantity demanded in the long run would also decrease significantly. This is because when the supply of oil decreases, it becomes more scarce and expensive. As a result, consumers would reduce their demand for oil, as they would either find alternatives or reduce their overall consumption. This decrease in quantity demanded would be significant as it reflects a long-term adjustment to the reduced supply of oil.