Question 1

Suppose good X has a negative income elasticity of demand.This implies that good X is

Accepted Answer

A negative income elasticity of demand means that as income increases, the demand for the good decreases. This is typically indicative of an inferior good, which is a good that people tend to buy less of as they become wealthier and can afford better alternatives.

Question 2

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

Accepted Answer

Boats are considered a luxury item, meaning that as people's incomes increase, they are more likely to purchase boats, resulting in a higher income elasticity of demand.

Question 3

If an increase in income results in a decrease in the quantity demanded of a good,then for that good,the

Accepted Answer

This scenario suggests that the good is an inferior good, which means as income rises, the quantity demanded of the good decreases. This in turn means that the income elasticity of demand is negative.

Question 4

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Accepted Answer

Luxuries have a high income elasticity of demand since as income increases, people have more disposable income to spend on these types of goods, causing demand to increase proportionally more than income.

Question 5

Necessities such as food and clothing tend to have

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 6

To determine whether a good is considered normal or inferior,one could examine the value of the

Accepted Answer

The income elasticity of demand measures the responsiveness of demand for a good to a change in consumer income. If the income elasticity of demand is positive, the good is considered a normal good, meaning that as consumer income increases, demand for the good also increases. If the income elasticity of demand is negative, the good is considered an inferior good, meaning that as consumer income increases, demand for the good decreases. Therefore, examining the income elasticity of demand for that good is the best way to determine whether it is normal or inferior.

Question 7

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

Accepted Answer

The income elasticity of demand is negative, indicating that good X is an inferior good. A 5% decrease in income will cause the quantity demanded to increase by 2.5% (5% * -0.5 = -2.5%).

Question 8

The income elasticity of demand for caviar tends to be

Accepted Answer

Caviar is considered a luxury good, and luxury goods typically have high income elasticity of demand because consumers are more likely to purchase them as their income increases.

Question 9

Income elasticity of demand measures how

Accepted Answer

Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in consumer income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. So, option A is the correct choice.

Question 10

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

Accepted Answer

Max's increase in income has led to a corresponding increase in the quantity demanded of athletic shoes, indicating that they are a normal good. The fact that he purchased more pairs while his income increased suggests that he has a moderate to high price elasticity of demand for athletic shoes. It is not possible to determine whether he considers them to be necessities or inferior goods from the given information.

Question 11

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

Accepted Answer

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

Question 12

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

Accepted Answer

To calculate the income elasticity of demand, we use the formula:

Income Elasticity of Demand = % Change in Quantity Demanded / % Change in Income

First, let's calculate the % 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
% Change in Quantity Demanded = 40%

Next, let's calculate the % change in income:

% Change in Income = [(New Income - Old Income) / Old Income] x 100

% Change in Income = [(60,000 - 54,000) / 54,000] x 100
% Change in Income = 11.11%

Now we can calculate the income elasticity of demand:

Income Elasticity of Demand = 40% / 11.11%

Income Elasticity of Demand = 3.6

Since the income elasticity of demand is greater than 1, we know that the good is a normal good. Therefore, the correct answer is D: 3.17 and Tess regards handbags as normal goods.

Question 13

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

Accepted Answer

Water is considered a basic necessity for survival, so even if someone's income decreases, they will still have to buy water. Therefore, the income elasticity of demand for water is likely to be low.

Question 14

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

Accepted Answer

Housing is considered a necessity and an essential good, meaning its demand is relatively insensitive to changes in income. Therefore, its income elasticity of demand is likely to be low.

Question 15

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

Accepted Answer

Diamonds are considered luxury goods and are associated with higher incomes, so as income increases, consumers are likely to demand even more diamonds, resulting in a higher income elasticity of demand.

Question 16

Suppose good X has a positive income elasticity of demand.This implies that good X could be
(i)A normal good.
(ii)A necessity.
(iii)An inferior good.
(iv)A luxury.

Accepted Answer

If a good has positive income elasticity of demand, it means that as income increases, quantity demanded of the good also increases. This is consistent with normal goods (i.e. goods for which demand increases as income increases) and luxury goods (i.e. goods for which demand increases more than proportionally as income increases). It is not consistent with necessities (i.e. goods for which demand remains the same even as income increases) or inferior goods (i.e. goods for which demand decreases as income increases). Therefore, the best answer is (C): good X could be a normal good, a necessity, or a luxury good.

Question 17

Which of the following should be held constant when calculating an income elasticity of demand?

Accepted Answer

When calculating income elasticity of demand, the only variable that should change is income. Therefore, the quantity of the good demanded and the price of the good should be held constant.

Question 18

Which of the following should be held constant when calculating an income elasticity of demand?

Accepted Answer

When calculating income elasticity of demand, all factors that can affect demand must be held constant to determine the change in demand solely based on income. Therefore, the price of the good, prices of related goods, and tastes should all be held constant.

Question 19

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

Accepted Answer

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

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

Accepted Answer

Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in income, all else constant. YED is calculated as the percentage change in quantity demanded divided by the percentage change in income.

In this case, we can calculate Joan's YED for hamburger as:

YED = [(60-50)/50] / [(30,000-40,000)/40,000] = -1

Since YED is negative, this means that Joan's demand for hamburger decreases when her income decreases. Therefore, hamburger is an inferior good for Joan. The correct choice is C: negative, so Joan considers hamburger to be an inferior good.

Quiz 5: Elasticity and Its Applications: The Elasticity of Demand

Suppose good X has a negative income elasticity of demand.This implies that good X is

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

If an increase in income results in a decrease in the quantity demanded of a good,then for that good,the

For which of the following types of goods would the income elasticity of demand be positive and relatively large?

Necessities such as food and clothing tend to have

To determine whether a good is considered normal or inferior,one could examine the value of the

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

The income elasticity of demand for caviar tends to be

Income elasticity of demand measures how

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

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

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?

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

Suppose good X has a positive income elasticity of demand.This implies that good X could be (i) A normal good. (ii) A necessity. (iii) An inferior good. (iv) A luxury.

Which of the following should be held constant when calculating an income elasticity of demand?

Which of the following should be held constant when calculating an income elasticity of demand?

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

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