Tennis rackets and tennis balls are:
Answer(s): D
Choice "d" is correct. Complementary goods are ones whose demand fluctuates together. If Good A and Good B are complements, then if the demand for Good A increases, the demand for Good B will also increase, tennis rackets and tennis balls are complements. Choice "a" is incorrect. For substitutive goods, as the price of one of the goods increases, the other good experiences an increase in demand as it is substituted for the first good. An example of substitute goods is apple and orange juice.Choice "b" is incorrect. Independent goods have demand functions that are not interrelated. An example would be bread and vacuum cleaners.Choice "c" is incorrect. Inferior goods experience a decrease in demand when income levels rise. An example is hamburger, which experiences decrease in demand as incomes rise and buyers switch to higher priced meats.
All of the following are complementary goods, except:
Answer(s): A
Choice "a" is correct. Margarine and butter are substitute goods. If the price of one goes up, demand for the substitute increases.Choices "b", "c", and "d" are incorrect. They are complements. Two goods are complements if they are used together or their demand curves move together (breakfast cereal and milk, e.g., or tennis balls and tennis racquets). Thus, if the price of one complement goes up, demand for the other good goes down.
Utility companies can generally price their product, a good that establishes a comfortable life-style (i.e., electricity, gas for home heating) based on the fact that the demand:
Answer(s): C
Choice "c" is correct. Goods that are important for a comfortable life-style would be relatively price insensitive (i.e., inelastic). For example, demand for electricity would only decrease if there were an enormous increase in price (people might then use other forms of energy - such as solar). Only goods that are absolute necessities (a theoretical example is water) have perfectly inelastic demand curves.That is, no matter what price is charged, people will still buy the product because they need it to stay alive.Choices "a", "b", and "d" are incorrect, per for choice "c" above.
Product demands become more elastic the:
Choice "a" is correct. Product demands become more elastic the greater the number of substitutes available. With price increases, consumers will switch to substitute goods. Choice "b" is incorrect. Consumer income will not affect demand elasticity. Choice "c" is incorrect. Elasticity of supply and demand is unrelated. Choice "d" is incorrect. Product demand is more elastic the longer the time period, since more choices become available.
If a product's demand is elastic and there is a decrease in price, the effect will be:
Choice "d" is correct. If demand is relatively elastic, then the reduction in price will, by definition, produce a proportionately greater increase in quantity demanded. Hence, total revenue will increase.Choices "a", "b", and "c" are incorrect, per above.
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