Question 1

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income. 
-Refer to Table 5-7. 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 midpoint method calculates the percentage change in quantity demanded and income. If the percentage change in quantity demanded is equal to the percentage change in income, the income elasticity of demand is 1.00.

Question 2

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income. 
-Refer to Table 5-7. 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 5-7
The following table shows a portion...

Question 3

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about
A)0.32, and Tess regards handbags as inferior goods.
B)0.32, and Tess regards handbags as normal goods.
C)3.17, and Tess regards handbags as inferior goods.
D)3.17, and Tess regards handbags as normal goods.

Accepted Answer

Income elasticity of demand (YED) is calculated using the following formula:

YED = (% change in quantity demanded) / (% change in income)

% change in quantity demanded = [(New quantity - Old quantity) / Old quantity] x 100%
% change in income = [(New income - Old income) / Old income] x 100%

Using the given information, we can calculate the % change in quantity demanded and % change in income as follows:

% change in quantity demanded = [(7 - 5) / 5] x 100% = 40%
% change in income = [(60,000 - 54,000) / 54,000] x 100% = 11.11%

Plugging these values into the YED formula, we get:

YED = (40 / 11.11) = 3.6

Since the YED value is greater than 1, we can conclude that handbags are normal goods (i.e. as income increases, the demand for handbags also increases). Therefore, the correct answer is D.

Question 4

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max
A)considers athletic shoes to be necessities.
B)considers athletic shoes to be inferior goods.
C)considers athletic shoes to be normal goods.
D)has a low price elasticity of demand for athletic shoes.

Accepted Answer

Max's income has increased and he has increased his purchases of athletic shoes, indicating that athletic shoes are normal goods for him.

Question 5

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would
A)be negative and your roommate's would be positive.
B)be positive and your roommate's would be negative.
C)be zero and your roommate's would approach infinity.
D)approach infinity and your roommate's would be zero.

Accepted Answer

The answer of You and your college roommate eat three...

Question 6

Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This year, his income is $33,000, and he purchased 10 tickets to sporting events. Holding other factors constant and using the midpoint method, it follows that Jim's income elasticity of demand is about
A)0.43, and Jim regards tickets to sporting events as inferior goods.
B)0.43, and Jim regards tickets to sporting events as normal goods.
C)2.33, and Jim regards tickets to sporting events as inferior goods.
D)2.33, and Jim regards tickets to sporting events as normal goods.

Accepted Answer

The answer of Last year, Jim bought 8 tickets to...

Question 7

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni
A)and soy-burgers are both normal goods with income elasticities equal to 1.
B)is an inferior good and soy-burgers are normal goods; both have income elasticities of 1.
C)is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.
D)and soy-burgers are both inferior goods with income elasticities equal to -1.

Accepted Answer

When Heather's income increased, her consumption of macaroni decreased, which means that macaroni is an inferior good with an income elasticity of -1. On the other hand, her consumption of soy-burgers increased, which indicates that soy-burgers are normal goods with an income elasticity of 1.

Question 8

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
A)negative, and the good is an inferior good.
B)negative, and the good is a normal good.
C)positive, and the good is a normal good.
D)positive, and the good is an inferior good.

Accepted Answer

The income elasticity of demand measures the responsiveness of quantity demanded to changes in income. Since a 4 percent increase in income results in a 2 percent increase in quantity demanded, the income elasticity of demand is positive (since the two variables move in the same direction) and less than 1 (since the percentage change in quantity demanded is less than the percentage change in income). Therefore, the good is a normal good.

Question 9

Table 5-8 
-Refer to Table 5-8. 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 5-8 
-Refer to Table 5-8. Using...

Question 10

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

The fact that Danita's quantity demanded of dog biscuits increases with a rise in income indicates that dog biscuits are a normal good for her. The income elasticity of demand is positive because the percentage change in quantity demanded is greater than the percentage change in income.

Question 11

You and your college roommate eat three packages of Ramen noodles each week. After graduation last month, both of you were hired at several times your college income. You still enjoy Ramen noodles very much and buy even more, but your roommate plans to buy fewer Ramen noodles in favor of foods she prefers more. When looking at income elasticity of demand for Ramen noodles, yours would
A)be negative, and your roommate's would be positive.
B)be positive, and your roommate's would be negative.
C)be zero, and your roommate's would approach infinity.
D)approach infinity, and your roommate's would be zero.

Accepted Answer

Income elasticity of demand measures the sensitivity of demand for a product to a change in income. When income increases, demand for normal goods (goods that people buy more of when their income increases) also increases. As both you and your roommate have increased incomes, your demand for Ramen noodles has increased, making your income elasticity of demand positive. On the other hand, your roommate prefers other foods more and therefore will buy fewer Ramen noodles with the increased income, making their income elasticity of demand negative. Therefore, the correct choice is B. Choices A, C, and D are not correct as they do not accurately reflect the explanation given above.

Question 12

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for
A)2 percent more concerts.
B)5 percent more concerts.
C)10 percent more concerts.
D)20 percent more concerts.

Accepted Answer

The income elasticity of demand measures the responsiveness of quantity demanded to a change in income. In this case, Heath's income elasticity of demand for concerts is 2, which means that for a 10 percent increase in income, he will purchase 20 percent more concerts (by twice the percentage increase in income). Therefore, the correct answer is D.

Question 13

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income. 
-Refer to Table 5-7. 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 midpoint method calculates the income elasticity of demand as the percentage change in quantity demanded divided by the percentage change in income. At a price of $12, the income elasticity is 1.00, indicating a proportional change in quantity demanded with income.

Question 14

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to
A)increase by 2.5%, and X is an inferior good.
B)decrease by 2.5% and X is a normal good.
C)increase by 10% and X is an inferior good.
D)decrease by 10% and X is a normal good.

Accepted Answer

The answer of Suppose the income elasticity of demand is...

Question 15

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income. 
-Refer to Table 5-7. 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 5-7
The following table shows a portion...

Question 16

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
A)negative, and the good is an inferior good.
B)negative, and the good is a normal good.
C)positive, and the good is an inferior good.
D)positive, and the good is a normal good.

Accepted Answer

The answer of Assume that a 4 percent decrease in...

Question 17

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's
A)is negative, and Bethany's is positive.
B)is positive, and Bethany's is negative.
C)is zero, and Bethany's approaches infinity.
D)approaches infinity, and Bethany's is zero.

Accepted Answer

Income elasticity of demand measures the sensitivity of demand for a good to a change in income. If a person's demand for a good increases as income increases, the income elasticity of demand is positive. If the person's demand for a good decreases as income increases, the income elasticity of demand is negative. Option B is the correct choice because John's income elasticity of demand for mac-n-cheese is positive because he is able to purchase more of the good as his income increases. Bethany's income elasticity of demand for mac-n-cheese is negative because she purchases fewer packages of mac-n-cheese as her income increases.

Question 18

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's
A)is negative, and Laura's is positive.
B)is positive, and Laura's is negative.
C)is zero, and Laura's is positive.
D)is zero, and Laura's is negative.

Accepted Answer

Marty's income elasticity of demand for bus tickets is negative because as his income increases, he buys fewer bus tickets (from 15 to 0). This means that bus tickets are an inferior good for him. Laura's income elasticity of demand for bus tickets is positive because as her income increases, she buys more bus tickets (from 15 to 28). This means that bus tickets are a normal good for her.

Question 19

Table 5-8 
-Refer to Table 5-8. 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 5-8 
-Refer to Table 5-8. Using...

Question 20

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is
A)positive, so Joan considers hamburger to be an inferior good.
B)positive, so Joan considers hamburger to be a normal good and a necessity.
C)negative, so Joan considers hamburger to be an inferior good.
D)negative, so Joan considers hamburger to be a normal good but not a necessity.

Accepted Answer

Joan bought more hamburger when her income decreased, indicating that hamburger is an inferior good for her. The income elasticity of demand for an inferior good is negative.

Quiz 5: Elasticity and Its Application

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. 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?

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. 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?

Last year, Tess bought 5 handbags when her income was $54,000. This year, her income is $60,000, and she purchased 7 handbags. Holding other factors constant, it follows that Tess's income elasticity of demand is about

Last year, Max bought 6 pairs of athletic shoes when his income was $35,000. This year, his income is $42,000, and he purchased 8 pairs of athletic shoes. Holding other factors constant, it follows that Max

Last year, Jim bought 8 tickets to sporting events when his income was $30,000. This year, his income is $33,000, and he purchased 10 tickets to sporting events. Holding other factors constant and using the midpoint method, it follows that Jim's income elasticity of demand is about

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

Table 5-8 -Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is

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

Heath's income elasticity of demand for concerts is 2. All else equal, this means that if his income increases by 10 percent, he will purchase tickets for

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. 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?

Suppose the income elasticity of demand is -0.5 for good X. This implies that a 5% decrease in income will cause the quantity demanded of good X to

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac-n-cheese, John's

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

Table 5-8 -Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?

Last year, Joan bought 50 pounds of hamburger when her household's income was $40,000. This year, her household income was only $30,000 and Joan bought 60 pounds of hamburger. All else constant, Joan's income elasticity of demand for hamburger is