Question 1

Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that

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The answer of Suppose the value of income elasticity of...

Question 2

Suppose the athletic department wanted to increase revenues by decreasing ticket prices to football games. This would make sense only if the price elasticity of demand for football games was (in absolute value)

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If the price elasticity of demand for football games is greater than 1, it means that a decrease in ticket prices will result in a greater increase in quantity demanded, leading to an overall increase in revenue. In other words, the increase in demand will more than offset the decrease in price. However, if the elasticity is less than 1 or perfectly inelastic, decreasing prices will decrease revenues as the increase in quantity demanded will not be enough to offset the decrease in price. Therefore, A) is the best choice.

Question 3

A normal good is defined by economists to be a good

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A normal good is defined as a good whose demand increases when incomes increase.

Question 4

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause

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The answer of Assuming that bus travel is an inferior...

Question 5

Sarah recently got a 10 percent raise. She now purchases 30 percent more in groceries on a weekly basis. Sarah's income elasticity for groceries is

Accepted Answer

Income elasticity of demand is the percentage change in quantity demanded of a good or service divided by the percentage change in income.

The percentage change in income = 10% (as Sarah got a 10% raise)

The percentage change in quantity demanded of groceries = 30% (as Sarah purchases 30% more in groceries)

Therefore, the income elasticity of groceries for Sarah is:

(30%/10%) = 3

Thus, the answer is D.

Question 6

The number of CDs purchased increased by 5 percent when consumer income increased by 10 percent. Assuming other factors are held constant, CDs would be classified as

Accepted Answer

Since the increase in income led to an increase in consumption, CDs are classified as normal goods.

Question 7

If bus travel is an inferior good, then its income elasticity of demand will be

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If a good is inferior, its income elasticity of demand is negative.

Question 8

An inferior good is a good whose quantity demanded

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An inferior good is a good whose quantity demanded rises when the consumer's income falls. This is because as the consumer's income falls, they are inclined to purchase cheaper goods, even if they are of lower quality, leading to higher demand for inferior goods.

Question 9

If the price of apples increases, total expenditures on apples will decline if

Accepted Answer

If the demand for apples is elastic, then as the price of apples increases, consumers will reduce their quantity demanded by a greater amount. This will lead to a decrease in total expenditures on apples.

Question 10

A good is classified as inferior if

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An inferior good is a good where demand decreases as income increases. This means that consumers buy less of the good when their income rises, making choice B the correct answer. Choice A describes a normal good, where demand decreases as price increases. Choice C describes a Giffen good, which is a special case of an inferior good where demand actually increases as price increases. Choice D describes a superior good, where demand increases as income increases.

Question 11

If Francis experiences a decrease in his income, we would expect that Francis's demand for

Accepted Answer

If Francis experiences a decrease in his income, he will likely decrease his demand for normal goods as he has less purchasing power. However, his demand for inferior goods may increase as he may opt for cheaper alternatives. The statement "each good he purchases will remain unchanged" is not accurate as it depends on whether the good is normal or inferior. The statement "most goods will increase" is also not accurate without additional context.

Question 12

Elaine, a small grocer, is planning to cut certain prices to increase her sales revenues. What will be the likely result of a price decrease for matches, a good for which the demand is inelastic, and a price decrease for fresh green tomatoes, an item for which consumer demand is elastic?

Accepted Answer

For inelastic goods like matches, a price decrease leads to a decrease in total revenue. For elastic goods like fresh green tomatoes, a price decrease leads to an increase in total revenue.

Question 13

Muriel's income elasticity of demand for football tickets is 1.5. All else equal, this means that if her income increases by 20 percent, she will buy

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The answer of Muriel's income elasticity of demand for football...

Question 14

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,

Accepted Answer

Income elasticity of demand measures the responsiveness of quantity demanded to a change in income. As both you and your roommate have higher incomes now, the demand for Ramen noodles may decrease, but at different rates. If your demand for Ramen noodles still increases with your increased income, your income elasticity of demand would be positive. On the other hand, if your roommate's demand for Ramen noodles decreases with her increased income, her income elasticity of demand would be negative. Therefore, choice B is the best answer.

Question 15

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause

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The answer of Assuming that bus travel is an inferior...

Question 16

Sally recently got a 15 percent raise. She now purchases 7.5 percent more steak dinners. Sally's income elasticity for steak dinners is

Accepted Answer

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it's (7.5% / 15%) = 0.5.

Question 17

If people buy less chewing gum at every price when their incomes fall, then

Accepted Answer

When people buy less of a good or service as their incomes fall, it is an indication that the good or service is a normal good. Chewing gum is a normal good because as people's incomes fall, they tend to cut back on non-essential items, such as gum. The fact that demand for chewing gum decreases as incomes fall also implies that the demand for chewing gum is negatively sloped, not positively sloped. There is no evidence to suggest that demand for chewing gum has increased or that the price of chewing gum has increased. The scenario also does not mention anything about a decrease in population, so that cannot be a factor in the change in demand for chewing gum.

Question 18

If the income elasticity of a good is positive, we can conclude that the good is

Accepted Answer

If the income elasticity of a good is positive, it means that as income increases, the demand for that good also increases. This is characteristic of a normal good, which is a good that people buy more of as their income increases.

Question 19

The difference between normal and inferior goods is that

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The answer of The difference between normal and inferior goods...

Question 20

If a 10 percent increase in income induced a group of consumers to reduce their yearly purchases of potatoes by 5 percent, for these consumers,

Accepted Answer

The decrease in purchases of potatoes in response to an increase in income indicates that potatoes are an inferior good, which means that their income elasticity is negative. A 10 percent increase in income would result in a decrease in purchases of (-5/10) = -0.5, so the income elasticity of potatoes is approximately -0.5.

Quiz 7: Consumer Choice and Elasticity