Question 1

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 2

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 increase in income is accompanied by an increase in the quantity demanded of athletic shoes, indicating that athletic shoes are a normal good for Max.

Question 3

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

A positive income elasticity of demand means that as income increases, the quantity demanded of the good also increases, indicating that dog biscuits are a normal good for Danita.

Question 4

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 5

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

A positive income elasticity of demand means that as income increases, the quantity demanded of the good also increases. Since the question states that a 4 percent increase in income results in a 2 percent increase in quantity demanded, the income elasticity of demand can be calculated as:

(% change in quantity demanded) / (% change in income) = 2%/4% = 0.5

Since the result is positive (and not negative), we can eliminate choices A and D. Furthermore, since the good is responding to the increase in income by also increasing in quantity demanded (i.e. it is a "normal good"), the correct answer is C.

Question 6

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 7

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 responsiveness of quantity demanded to changes in income. If your income has increased, and you are buying more Ramen noodles, it means that your demand for Ramen noodles has increased with an increase in income. Therefore, your income elasticity of demand for Ramen noodles would be positive. On the other hand, if your roommate's income has increased, but she is planning to buy fewer Ramen noodles, it means that her demand for Ramen noodles has decreased with an increase in income. Therefore, her income elasticity of demand for Ramen noodles would be negative.

Question 8

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 9

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 (after graduating and having a full-time job), he buys fewer bus tickets. This suggests that bus tickets are an inferior good for him, meaning that as his income increases he switches to a better mode of transportation such as a car. On the other hand, Laura's income elasticity of demand for bus tickets is positive because as her income increases (after graduating and having a full-time job), she buys more bus tickets. This suggests that bus tickets are a normal good for her, meaning that as her income increases she can afford to use the bus more frequently.

Question 10

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 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. 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 12

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

Heather's consumption of macaroni decreased with an increase in her income, indicating that macaroni is an inferior good. The income elasticity of demand for an inferior good is negative, hence its income elasticity is -1. Heather's consumption of soy-burgers increased with an increase in her income, indicating that soy-burgers are normal goods. The income elasticity of demand for a normal good is positive, hence its income elasticity is 1. Therefore, Macaroni is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1.

Question 13

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 responsiveness of the quantity demanded to a change in income. If John's quantity demanded increases as his income increases, his income elasticity of demand is positive. If Bethany's quantity demanded decreases as her income increases, her income elasticity of demand is negative. Therefore, John's income elasticity of demand is positive, and Bethany's income elasticity of demand is negative.

Question 14

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

Income elasticity of demand measures how a change in income affects the quantity of a good demanded. If the income elasticity of demand is negative, it means that as income decreases, the quantity demanded of the good increases. This suggests that the good is an inferior good. In this case, Joan bought more hamburger when her income decreased. Therefore, Joan considers hamburger to be an inferior good.

Question 15

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

Heath's income elasticity of demand for concerts is 2, which means that if his income increases by 10 percent, he will purchase 20 percent more concerts (2 x 10 = 20). Therefore, the correct answer is D.

Question 16

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 17

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 answer of Table 5-7
The following table shows a portion...

Question 18

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 answer of Table 5-7
The following table shows a portion...

Question 19

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

The income elasticity of demand formula is:

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

Using last year's income and handbag purchase as the base year, we can calculate the percentage change in quantity demanded:

% Change in quantity demanded = (New quantity demanded - Old quantity demanded) / Old quantity demanded x 100%

% Change in quantity demanded = (7-5) / 5 x 100% = 40%

Using the same base year, we can also calculate the percentage change in income:

% Change in income = (New income - Old income) / Old income x 100%

% Change in income = (60000-54000) / 54000 x 100% = 11.11%

Plugging in these values to the formula, we get:

Income Elasticity of Demand = 40% / 11.11% = 3.6

Since the income elasticity of demand is greater than 1, we know that handbags are a normal good for Tess. The closest answer choice is D, with a close estimation of the income elasticity of demand at 3.17.

Question 20

Food and clothing tend to have
A)small income elasticities because consumers, regardless of their incomes, choose to buy relatively constant quantities of these goods.
B)small income elasticities because consumers buy proportionately more of both goods at higher income levels than they buy at low income levels.
C)large income elasticities because they are necessities.
D)large income elasticities because they are relatively inexpensive.

Accepted Answer

Food and clothing are considered necessities and are typically purchased in similar or constant quantities regardless of income level. Thus, their income elasticities tend to be small.

Quiz 5: Elasticity and Its Application

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

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

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

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?

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

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

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

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

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

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

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

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

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?

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?

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

Food and clothing tend to have