Suppose European incomes increase by 4 percent per year,and as a result,U.S.exports of farm goods to Europe rise by less than 4 percent annually.The elasticity that can be computed from this information is the
A)Price elasticity of supply.
B)Cross-price elasticity of demand for income with respect to U.S.farm goods.
C)Income elasticity of demand for U.S.farm exports.
D)Price elasticity of demand.

Question

Quizplus · Accepted Answer

The increase in European incomes and the resulting increase in U.S. farm exports suggest that there is an elasticity of demand at work. Specifically, this implies that there is an income elasticity of demand for U.S. farm exports. The fact that U.S. farm exports are rising by less than 4 percent annually suggests that the income elasticity of demand is less than 1. Therefore, the correct answer is C) Income elasticity of demand for U.S. farm exports.

Suppose European Incomes Increase by 4 Percent Per Year,and as a Result,U.S.exports