Question 1

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
A)150 percent more football tickets.
B)50 percent more football tickets.
C)30 percent more football tickets.
D)20 percent more football tickets.

Accepted Answer

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

Question 2

Suppose the value of income elasticity of demand for a private college education is equal to 1.5. This means that
A)every $1 increase in income provides an incentive for a $1.50 increase in expenditures on private college education.
B)every $1.50 increase in income provides an incentive for a $1 increase in expenditures on private college education.
C)a 10 percent increase in income causes a 15 percent increase in the quantity of private college education purchased.
D)a 15 percent increase in income causes a 10 percent increase in the quantity of private college education purchased.
E)a 10 percent decrease in private college tuition will have a large enough income effect to increase spending on private college education by 15 percent.

Accepted Answer

Income elasticity of demand measures the responsiveness of quantity demanded to changes in income. An income elasticity of demand of 1.5 means that a 10 percent increase in income would lead to a 15 percent increase in the quantity of private college education purchased: (1.5 x 10% = 15%). Therefore, choice C is correct. Choices A, B, D, and E are incorrect based on this definition of income elasticity of demand.

Question 3

A normal good is defined by economists to be a good
A)with a negatively-sloped demand curve.
B)that is purchased by at least 75 percent of the population.
C)that is bought by consumers with normal tastes.
D)whose demand increases when incomes increase.
E)whose demand decreases when incomes increase.

Accepted Answer

A normal good is one for which demand increases as income increases. This is because as people's incomes grow, they have more purchasing power and can afford to buy more of the good. Therefore, the correct answer is D, whose demand increases when incomes increase.

Question 4

If people buy less chewing gum at every price when their incomes fall, then
A)chewing gum is a normal good.
B)the demand for chewing gum is positively sloped.
C)demand for chewing gum has increased.
D)the price of chewing gum has increased.
E)there has been a decrease in population that changed demand.

Accepted Answer

When people buy less of a good as their incomes fall, it is an indication that the good is a normal good. This is because as income falls, people have less disposable income to spend on non-essential goods like chewing gum, causing a decrease in demand. A normal good has a positively sloped demand curve, meaning that as income rises, demand for the good increases and vice versa. None of the other options provided are relevant or accurate explanations for the scenario described.

Question 5

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
A)inferior goods.
B)normal goods.
C)elastic goods.
D)inelastic goods.

Accepted Answer

The fact that the quantity of CDs purchased increased when consumer income increased suggests that CDs are a normal good. If CDs were an inferior good, we would have expected the quantity demanded to fall as income increased. The elasticity of demand cannot be determined from this information, as we do not know the magnitude of the change in quantity demanded relative to the change in price.

Question 6

Sally recently got a 15 percent raise. She now purchases 7.5 percent more steak dinners. Sally's income elasticity for steak dinners is
A)0.5.
B)0.75.
C)1.5
D)2.

Accepted Answer

The answer of Sally recently got a 15 percent raise....

Question 7

Assuming that bus travel is an inferior good, a decrease in consumer income, other things being equal, will cause
A)a downward movement along the demand curve for bus travel.
B)no change in the demand curve for bus travel.
C)an upward movement along the demand curve for air travel.
D)a rightward shift in the demand curve for bus travel.

Accepted Answer

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

Question 8

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
A)0.33.
B)0.5.
C)1.
D)3.

Accepted Answer

Income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income. Here, Sarah's income has increased by 10 percent and her quantity demanded for groceries has increased by 30 percent. So, the income elasticity of demand for groceries is 30/10 = 3. Therefore, the answer is (D).

Question 9

Assuming that bus travel is an inferior good, an increase in consumer income, other things being equal, will cause
A)an upward movement along the demand curve for bus travel.
B)a downward movement along the demand curve for bus travel.
C)a rightward shift in the demand curve for bus travel.
D)a leftward shift in the demand curve for bus travel.

Accepted Answer

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

Question 10

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)
A)greater than 1.
B)equal to 1.
C)less than 1.
D)perfectly inelastic.

Accepted Answer

If the price elasticity of demand for football games is greater than 1, then decreasing ticket prices will lead to a more than proportionate increase in ticket sales (revenues). In other words, the percentage increase in quantity demanded will be higher than the percentage decrease in price, resulting in a net increase in revenue for the athletic department. Therefore, reducing ticket prices makes sense only if the price elasticity of demand is greater than 1, as it would lead to higher revenues.

Question 11

The difference between normal and inferior goods is that
A)an increase in price will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward.
B)if the price of a normal good increases, individuals who buy it are poorer; for inferior goods, the opposite is true.
C)an inferior good is something that will not be demanded until quantities of the normal good have been exhausted.
D)an increase in income will shift the demand curve for a normal good rightward and the demand curve for an inferior good leftward.

Accepted Answer

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

Question 12

A good is classified as inferior if
A)consumers buy less when the price rises.
B)consumers buy less when income rises.
C)consumers buy less when the price falls.
D)consumers buy more when income rises.

Accepted Answer

An inferior good is a good for which demand decreases as income rises, meaning that consumers buy less of the good when their income increases. Therefore, Option B is the correct answer. Option A is referring to a normal good, where demand decreases as the price increases. Option C is referring to a situation where demand increases as the price falls, which is typical for most goods, but not for inferior goods. Option D is referring to a normal good again, where demand increases as income rises.

Question 13

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,
A)the income elasticity of potatoes equals approximately 1.05.
B)the income elasticity of potatoes is 0.5.
C)potatoes are a luxury good.
D)potatoes are an inferior good.

Accepted Answer

A reduction in quantity demanded due to an increase in income is indicative of an inferior good. Therefore, potatoes are an inferior good for this group of consumers.

Question 14

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?
A)The total revenue derived from both will go up.
B)The total revenue derived from matches will increase, but total revenue derived from tomatoes will decline.
C)The total revenue derived from matches will decline, but total revenues derived from tomatoes will increase.
D)The total revenues derived from both will decline.

Accepted Answer

The answer of Elaine, a small grocer, is planning to...

Question 15

If Francis experiences a decrease in his income, we would expect that Francis's demand for
A)each good he purchases will remain unchanged.
B)normal goods will decrease.
C)most goods will increase.
D)inferior goods will decrease.

Accepted Answer

If Francis experiences a decrease in his income, it is likely that he will shift his consumption towards cheaper goods and decreasing his demand for normal goods. Therefore, the demand for normal goods will decrease.

Question 16

An inferior good is a good whose quantity demanded
A)rises when its price falls.
B)falls when the price of a related good falls.
C)falls when the consumer's total utility rises.
D)rises when the consumer's income falls.

Accepted Answer

An inferior good is a good for which demand increases as consumer income decreases. This is because consumers switch to cheaper alternatives when their purchasing power decreases, so demand for the cheaper alternative - the inferior good - increases.

Question 17

If the income elasticity of a good is positive, we can conclude that the good is
A)an inferior good.
B)a normal good.
C)a luxury good.
D)a necessity.

Accepted Answer

If the income elasticity of a good is positive, it means that as income increases, the quantity demanded of the good also increases. This is consistent with a normal good, which is a good for which demand increases as income increases. A luxury good, which is a good for which demand increases more than proportionally as income increases, is also a possibility but not the only one, as the income elasticity could be less than one.

Question 18

If bus travel is an inferior good, then its income elasticity of demand will be
A)strictly greater than one.
B)positive.
C)equal to zero.
D)negative.

Accepted Answer

If bus travel is an inferior good, then as income increases, demand decreases. A negative income elasticity of demand reflects this inverse relationship.

Question 19

If the price of apples increases, total expenditures on apples will decline if
A)there are few substitutes for apples.
B)the supply of apples is inelastic.
C)the demand for apples is elastic.
D)apples are a normal good.

Accepted Answer

If the demand for apples is elastic, consumers are likely to switch to other substitutes (such as pears, oranges, etc.) if the price of apples increases. This would lead to a decline in total expenditures on apples. If the demand for apples is inelastic, consumers are likely to continue buying apples even if the price increases, leading to a higher total expenditure on apples. The supply of apples being inelastic or apples being a normal good may affect the price elasticity of demand, but they do not necessarily determine whether total expenditures on apples will decline or not.

Question 20

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,
A)yours would be negative and your roommate's would be positive.
B)yours would be positive and your roommate's would be negative.
C)yours would be zero and your roommate's would approach infinity.
D)yours would approach infinity and your roommate's would be zero.

Accepted Answer

Income elasticity of demand measures the responsiveness of quantity demanded to a change in income. If your demand for Ramen noodles increases with an increase in income, then your income elasticity of demand is positive. If your roommate's demand for Ramen noodles decreases with an increase in income, then her income elasticity of demand is negative. Therefore, your income elasticity of demand would be positive and your roommate's would be negative.

Quiz 7: Consumer Choice and Elasticity

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

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

A normal good is defined by economists to be a good

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

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

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

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

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

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

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)

The difference between normal and inferior goods is that

A good is classified as inferior if

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,

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?

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

An inferior good is a good whose quantity demanded

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

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

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