Question 1

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income. $\begin{array}{|c|c|c|c|}
\hline \text { Price } & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\$ \mathbf{\$ 5 , 0 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\mathbf{\$ 7 , 5 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
(\text { Income }=\mathbf{\$ 1 0 , 0 0 0})
\end{array} \
\hline \$ 24 & 2 & 3 & 4 \
\hline \$ 20 & 4 & 6 & 8 \
\hline \$ 16 & 6 & 9 & 12 \
\hline \$ 12 & 8 & 12 & 16 \
\hline \$ 8 & 10 & 15 & 20 \
\hline \$ 4 & 12 & 18 & 24 \
\hline
\end{array}$

-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 2

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income. $\begin{array}{|c|c|c|c|}
\hline \text { Price } & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\$ \mathbf{\$ 5 , 0 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\mathbf{\$ 7 , 5 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
(\text { Income }=\mathbf{\$ 1 0 , 0 0 0})
\end{array} \
\hline \$ 24 & 2 & 3 & 4 \
\hline \$ 20 & 4 & 6 & 8 \
\hline \$ 16 & 6 & 9 & 12 \
\hline \$ 12 & 8 & 12 & 16 \
\hline \$ 8 & 10 & 15 & 20 \
\hline \$ 4 & 12 & 18 & 24 \
\hline
\end{array}$

-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

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 for a good indicates that it is a normal good, meaning that as income increases, so does the quantity demanded. The 12 percent increase in quantity demanded of dog biscuits by Danita after a 7 percent increase in income indicates a positive income elasticity of demand for dog biscuits.

Question 4

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...

Question 5

Figure 5-10 
-Refer to Figure 5-10. An increase in price from $30 to $35 would
A)increase total revenue by $250
B)decrease total revenue by $250.
C)increase total revenue by $500.
D)decrease total revenue by $500.

Accepted Answer

The answer of Figure 5-10 
-Refer to Figure 5-10. An...

Question 6

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

Question 7

Figure 5-11 
-Refer to Figure 5-11. Using the midpoint method, the price elasticity of demand between point C and point D is about
A)0.29.
B)0.54.
C)1.86.
D)2.0.

Accepted Answer

Using the midpoint method, the price elasticity of demand is calculated as
((Qd2 - Qd1) / (Qd2 + Qd1) ÷ (P2 - P1) / (P2 + P1))
((60 - 90) / ((60 + 90) / 2) ÷ (6 - 8) / ((6 + 8) / 2))
(-30 / 75) ÷ (-2 / 7)
0.4 ÷ 0.2857
1.4
Since the elasticity is greater than 1, it is elastic. Therefore, the correct answer is B) 0.54.

Question 8

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 9

Table 5-6
 $\begin{array}{|l|l|l|}
\hline \text { Income } & \begin{array}{l}
\text { Quantity of Good X } \
\text { Purchased }
\end{array} & \begin{array}{l}
\text { Quantity of Good Y } \
\text { Purchased }
\end{array} \
\hline \$ 30,000 & 2 & 20 \
\hline \$ 40,000 & 6 & 10 \
\hline
\end{array}$

-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

Using the midpoint method, the change in income between the two income levels is:

\begin{align*}
	ext{Change in Income} &= \dfrac{\$40,000 - \$30,000}{\dfrac{\$40,000 + \$30,000}{2}} \
&= \dfrac{\$10,000}{\$35,000} \
&= 0.286
\end{align*}

The change in quantity purchased of good X between the two income levels is:

\begin{align*}
	ext{Change in Quantity of X} &= \dfrac{6-2}{\dfrac{6+2}{2}} \
&= 2
\end{align*}

Therefore, the income elasticity of demand for good X is:

\begin{align*}
	ext{Income Elasticity of Demand} &= \dfrac{	ext{Percentage Change in Quantity of X}}{	ext{Percentage Change in Income}} \
&= \dfrac{(2/4)}{0.286} \
&\approx \boxed{3.5} \
\end{align*}

Note: The income elasticity of demand for good X is positive, indicating that it is a normal good.

Question 10

Figure 5-11 
-Refer to Figure 5-11. If the price falls from point A to point B, 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...

Question 11

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 change in quantity demanded is higher than the change in price. This implies that the demand is elastic between prices P₁ and P₂. As a result, a decrease in price from P₂ to P₁ will cause an increase in total revenue. Additionally, 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, supporting the elasticity of demand in this price range. Therefore, all of the above statements are correct.

Question 12

Table 5-6
 $\begin{array}{|l|l|l|}
\hline \text { Income } & \begin{array}{l}
\text { Quantity of Good X } \
\text { Purchased }
\end{array} & \begin{array}{l}
\text { Quantity of Good Y } \
\text { Purchased }
\end{array} \
\hline \$ 30,000 & 2 & 20 \
\hline \$ 40,000 & 6 & 10 \
\hline
\end{array}$

-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
 \(\begin{array}{|l|l|l|}
\hline \text { Income }...

Question 13

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

To calculate the income elasticity of demand, we use the formula:
% change in quantity demanded / % change in income

For Carolyn, the % change in quantity demanded is:
((7-6)/6) x 100% = 16.7%

The % change in income is:
((52000-40000)/40000) x 100% = 30%

Using these values in the formula, we get:
16.7% / 30% = 0.56

Since the result is less than 1, Carolyn regards earrings as a normal good. The closest option is B, which has an income elasticity of demand of 0.59.

Question 14

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income. $\begin{array}{|c|c|c|c|}
\hline \text { Price } & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\$ \mathbf{\$ 5 , 0 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\mathbf{\$ 7 , 5 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
(\text { Income }=\mathbf{\$ 1 0 , 0 0 0})
\end{array} \
\hline \$ 24 & 2 & 3 & 4 \
\hline \$ 20 & 4 & 6 & 8 \
\hline \$ 16 & 6 & 9 & 12 \
\hline \$ 12 & 8 & 12 & 16 \
\hline \$ 8 & 10 & 15 & 20 \
\hline \$ 4 & 12 & 18 & 24 \
\hline
\end{array}$

-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 15

Figure 5-11 
-Refer to Figure 5-11. Using the midpoint method, the price elasticity of demand between point A and point B is about
A)0.33.
B)0.5.
C)2.0.
D)3.0.

Accepted Answer

The answer of Figure 5-11 
-Refer to Figure 5-11. Using...

Question 16

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...

Question 17

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 the quantity demanded changes as consumer income changes. It shows the sensitivity of demand for a good or service to a change in income of consumers.

Question 18

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income. $\begin{array}{|c|c|c|c|}
\hline \text { Price } & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\$ \mathbf{\$ 5 , 0 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\mathbf{\$ 7 , 5 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
(\text { Income }=\mathbf{\$ 1 0 , 0 0 0})
\end{array} \
\hline \$ 24 & 2 & 3 & 4 \
\hline \$ 20 & 4 & 6 & 8 \
\hline \$ 16 & 6 & 9 & 12 \
\hline \$ 12 & 8 & 12 & 16 \
\hline \$ 8 & 10 & 15 & 20 \
\hline \$ 4 & 12 & 18 & 24 \
\hline
\end{array}$

-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 19

Table 5-5
The following table shows a portion of the demand schedule for a particular good at various levels of income. $\begin{array}{|c|c|c|c|}
\hline \text { Price } & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\$ \mathbf{\$ 5 , 0 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
\text { (Income }=\mathbf{\$ 7 , 5 0 0})
\end{array} & \begin{array}{c}
\text { Quantity Demanded } \
(\text { Income }=\mathbf{\$ 1 0 , 0 0 0})
\end{array} \
\hline \$ 24 & 2 & 3 & 4 \
\hline \$ 20 & 4 & 6 & 8 \
\hline \$ 16 & 6 & 9 & 12 \
\hline \$ 12 & 8 & 12 & 16 \
\hline \$ 8 & 10 & 15 & 20 \
\hline \$ 4 & 12 & 18 & 24 \
\hline
\end{array}$

-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 20

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

The fact that Shelley bought more designer jeans as her income increased indicates that designer jeans are a normal good for her. A normal good is one for which demand increases as income increases, and this is exactly what we observe in this scenario. Therefore, the best choice is C.

Quiz 5: Elasticity and Its Application

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

Figure 5-10 -Refer to Figure 5-10. An increase in price from $30 to $35 would

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

Figure 5-11 -Refer to Figure 5-11. Using the midpoint method, the price elasticity of demand between point C and point D is about

Necessities such as food and clothing tend to have

Figure 5-11 -Refer to Figure 5-11. If the price falls from point A to point B, total revenue

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

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

Figure 5-11 -Refer to Figure 5-11. Using the midpoint method, the price elasticity of demand between point A and point B is about

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

Income elasticity of demand measures how

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

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

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