Question 1

Necessities such as food and clothing tend to have
A) high price elasticities of demand and high income elasticities of demand.
B) high price elasticities of demand and low income elasticities of demand.
C) low price elasticities of demand and high income elasticities of demand.
D) low price elasticities of demand and low income elasticities of demand.

Accepted Answer

Necessities such as food and clothing are essential for survival, so consumers are willing to pay for them even if their prices increase. This implies that the demand is insensitive to price changes, leading to a low price elasticity of demand. Additionally, these goods are typically purchased regardless of income level, implying that income has little effect on the quantity demanded, resulting in a low income elasticity of demand.

Question 2

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-5.Using the midpoint method,when income equals $5,000,what is the price elasticity of demand between $8 and $12?
A) 0.56
B) 0.75
C) 1.33
D) 1.80

Accepted Answer

The answer of Table 5-5
The following table shows a portion...

Question 3

Last year,Shelley bought 6 pairs of designer jeans when her income was $40,000.This year,her income is $50,000,and she purchased 10 pairs of designer jeans.Holding other factors constant,it follows that Shelley
A) considers designer jeans to be a necessity.
B) considers designer jeans to be an inferior good.
C) considers designer jeans to be a normal good.
D) has a low price elasticity of demand for jeans.

Accepted Answer

As Shelley's income has increased, and she has increased her purchases of designer jeans, this indicates that designer jeans are a normal good for her. A normal good is a good for which demand increases as income increases.

Question 4

For which of the following goods is the income elasticity of demand likely highest?
A) water
B) diamonds
C) hamburgers
D) housing

Accepted Answer

Diamonds are a luxury good and people only purchase them when they have a high disposable income. Therefore, the income elasticity of demand for diamonds is likely to be very high.

Question 5

Figure 5-12 -Refer to Figure 5-12.If rectangle D is larger than rectangle A,then A) demand is elastic between prices P₁ and P₂. B) a decrease in price from P₂ to P₁ will cause an increase in total revenue. C) the magnitude of the percent change in price between P₁ and P₂is smaller than the magnitude of the corresponding percent change in quantity demanded. D) All of the above are correct.

Accepted Answer

If rectangle D is larger than rectangle A, it means that the percentage change in quantity demanded is greater than the percentage change in price, indicating demand elasticity. Therefore, option A is correct. According to the law of demand, a decrease in price leads to an increase in quantity demanded. Because elasticity suggests that the percentage change in quantity demanded is greater than the percentage change in price, a decrease in price from P₂ to P₁ will cause an increase in total revenue. Thus, option B is also correct. Lastly, since elasticity indicates that the percentage change in quantity demanded is greater than the percentage change in price, the magnitude of the percent change in price between P₁ and P₂ is smaller than the magnitude of the corresponding percent change in quantity demanded. Therefore, option C is also correct. Hence, the best choice is D.

Question 6

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-5.Using the midpoint method,at a price of $16,what is the income elasticity of demand when income rises from $5,000 to $10,000?
A) 0.00
B) 0.50
C) 1.00
D) 1.50

Accepted Answer

The answer of Table 5-5
The following table shows a portion...

Question 7

Figure 5-11 
-Refer to Figure 5-11.If the price rises from point D to point C,total revenue
A) increases,and demand is price elastic.
B) decreases,and demand is price elastic.
C) increases,and demand is price inelastic.
D) decreases,and demand is price inelastic.

Accepted Answer

The answer of Figure 5-11 
-Refer to Figure 5-11.If the...

Question 8

Income elasticity of demand measures how
A) the quantity demanded changes as consumer income changes.
B) consumer purchasing power is affected by a change in the price of a good.
C) the price of a good is affected when there is a change in consumer income.
D) many units of a good a consumer can buy given a certain income level.

Accepted Answer

Income elasticity of demand measures how much the quantity demanded of a good changes as consumer income changes. It shows the responsiveness of demand to changes in income.

Question 9

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-5.Using the midpoint method,at a price of $12,what is the income elasticity of demand when income rises from $5,000 to $10,000?
A) 0.00
B) 0.41
C) 1.00
D) 2.45

Accepted Answer

The answer of Table 5-5
The following table shows a portion...

Question 10

Last year,Carolyn bought 6 pairs of earrings when her income was $40,000.This year,her income is $52,000,and she purchased 7 pairs of earrings.Holding other factors constant,it follows that Carolyn's income elasticity of demand is about
A) 0.59,and Carolyn regards earrings as an inferior good.
B) 0.59,and Carolyn regards earrings as a normal good.
C) 1.7,and Carolyn regards earrings as an inferior good.
D) 1.7,and Carolyn regards earrings as a normal good.

Accepted Answer

We can calculate Carolyn's income elasticity of demand using the formula:

Income Elasticity of Demand = % change in quantity demanded / % change in income

Using the information given in the question, we can calculate:

% change in quantity demanded = (7-6)/6 * 100% = 16.67%
% change in income = (52,000-40,000)/40,000 * 100% = 30%

Plugging these values into the formula, we get:

Income Elasticity of Demand = 16.67% / 30% = 0.56

Since the income elasticity is less than 1, we can conclude that earrings are a normal good for Carolyn. The closest answer choice is B, which states that Carolyn regards earrings as a normal good and has an income elasticity of demand of 0.59.

Question 11

Table 5-6
 
-Refer to Table 5-6.Using the midpoint method,the income elasticity of demand for good Y is
A) 2.33,and good Y is a normal good.
B) -2.33,and good Y is an inferior good.
C) -0.43,and good Y is a normal good.
D) -0.43,and good Y is an inferior good.

Accepted Answer

The answer of Table 5-6
 
-Refer to Table 5-6.Using the...

Question 12

Figure 5-12 -Refer to Figure 5-12.Total revenue when the price is P₁ is represented by the area(s) A) B + D. B) A + B. C) C + D. D) D.

Accepted Answer

The answer of Figure 5-12 
-Refer to Figure 5-12.Total revenue...

Question 13

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-5.Using the midpoint method,when income equals $7,500,what is the price elasticity of demand between $16 and $20?
A) 0.56
B) 0.75
C) 1.33
D) 1.80

Accepted Answer

The answer of Table 5-5
The following table shows a portion...

Question 14

For which of the following goods is the income elasticity of demand likely lowest?
A) subscriptions to premium movie channels through the local cable television provider
B) hi-definition DVD players
C) champagne
D) housing

Accepted Answer

Housing is a necessity good and typically has a low income elasticity of demand as people will always need a place to live regardless of their income level.

Question 15

For which of the following goods is the income elasticity of demand likely lowest?
A) water
B) sapphire pendant necklaces
C) filet mignon steaks
D) fresh fruit

Accepted Answer

Water is a necessity and therefore, regardless of income level, people will demand it. The income elasticity of demand for water is likely to be low as it is not a luxury good.

Question 16

Figure 5-12 -Refer to Figure 5-12.Total revenue when the price is P₂ is represented by the area(s) A) B + D. B) A + B. C) C + D. D) D.

Accepted Answer

The total revenue is equal to the price multiplied by the quantity sold. At a price of P₂, the quantity sold is Q1, and the total revenue is represented by the area of rectangle A and rectangle B. Therefore, the correct answer is B.

Question 17

For which of the following goods is the income elasticity of demand likely highest?
A) natural gas
B) doctor's visits
C) hamburgers
D) boats

Accepted Answer

Boats are generally considered to be a luxury good, meaning that as income increases, demand for boats is likely to increase at a faster rate. Therefore, the income elasticity of demand for boats is likely the highest among the options given.

Question 18

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-5.Using the midpoint method,at a price of $8,what is the income elasticity of demand when income rises from $7,500 to $10,000?
A) 0.00
B) 0.41
C) 1.00
D) 2.45

Accepted Answer

The answer of Table 5-5
The following table shows a portion...

Question 19

Table 5-6
 
-Refer to Table 5-6.Using the midpoint method,what is the income elasticity of demand for good X?
A) -3.5
B) -0.29
C) 0.29
D) 3.5

Accepted Answer

The answer of Table 5-6
 
-Refer to Table 5-6.Using the...

Question 20

Danita rescues dogs from her local animal shelter.When Danita's income rises by 7 percent,her quantity demanded of dog biscuits increases by 12 percent.For Danita,the income elasticity of demand for dog biscuits is
A) negative,and dog biscuits are a normal good.
B) negative,and dog biscuits are an inferior good.
C) positive,and dog biscuits are an inferior good.
D) positive,and dog biscuits are a normal good.

Accepted Answer

Since Danita's quantity demanded of dog biscuits increases as her income rises, her income elasticity of demand is positive. Additionally, since dog biscuits are a normal good (a good for which demand increases as income increases), the answer is D.

Quiz 5: Elasticity and Its Application

Necessities such as food and clothing tend to have

Table 5-5 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-5.Using the midpoint method,when income equals $5,000,what is the price elasticity of demand between $8 and $12?

Last year,Shelley bought 6 pairs of designer jeans when her income was $40,000.This year,her income is $50,000,and she purchased 10 pairs of designer jeans.Holding other factors constant,it follows that Shelley

For which of the following goods is the income elasticity of demand likely highest?

Figure 5-12 -Refer to Figure 5-12.If rectangle D is larger than rectangle A,then

Table 5-5 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-5.Using the midpoint method,at a price of $16,what is the income elasticity of demand when income rises from $5,000 to $10,000?

Figure 5-11 -Refer to Figure 5-11.If the price rises from point D to point C,total revenue

Income elasticity of demand measures how

Table 5-5 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-5.Using the midpoint method,at a price of $12,what is the income elasticity of demand when income rises from $5,000 to $10,000?

Last year,Carolyn bought 6 pairs of earrings when her income was $40,000.This year,her income is $52,000,and she purchased 7 pairs of earrings.Holding other factors constant,it follows that Carolyn's income elasticity of demand is about

Table 5-6 -Refer to Table 5-6.Using the midpoint method,the income elasticity of demand for good Y is

Figure 5-12 -Refer to Figure 5-12.Total revenue when the price is P1 is represented by the area(s)

Table 5-5 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-5.Using the midpoint method,when income equals $7,500,what is the price elasticity of demand between $16 and $20?

For which of the following goods is the income elasticity of demand likely lowest?

For which of the following goods is the income elasticity of demand likely lowest?

Figure 5-12 -Refer to Figure 5-12.Total revenue when the price is P2 is represented by the area(s)

For which of the following goods is the income elasticity of demand likely highest?

Table 5-5 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-5.Using the midpoint method,at a price of $8,what is the income elasticity of demand when income rises from $7,500 to $10,000?

Table 5-6 -Refer to Table 5-6.Using the midpoint method,what is the income elasticity of demand for good X?

Danita rescues dogs from her local animal shelter.When Danita's income rises by 7 percent,her quantity demanded of dog biscuits increases by 12 percent.For Danita,the income elasticity of demand for dog biscuits is

Figure 5-12 -Refer to Figure 5-12.Total revenue when the price is P₁ is represented by the area(s)

Figure 5-12 -Refer to Figure 5-12.Total revenue when the price is P₂ is represented by the area(s)