Question 1

Graphically, what is the main difference between the measure of income elasticity of demand as opposed to the measure of price elasticity of demand?

Accepted Answer

The answer of Graphically, what is the main difference between...

Question 2

-Use the above table. The income elasticity of jam is

Accepted Answer

Based on the high income elasticity of demand for artisan bread, it can be considered a luxury good, which means that as income increases, demand for artisan bread also increases.

Answer: D) -3.00.
 The income elasticity of jam is calculated as percentage change in quantity demanded of jam divided by percentage change in income. Using the information in the table, we can see that when income increases from $50,000 to $65,000, quantity demanded of jam decreases from 200 to 140. This represents a percentage change in quantity demanded of -30%. Similarly, the percentage change in income is 30%. Therefore, the income elasticity of jam is calculated as (-30% / 30%) = -1. This means that jam is an inferior good, where as income increases, demand for the good decreases.

Therefore, the best choice would be:

Answer: A,D
 Artisan bread is a luxury good, and jam is an inferior good with a negative income elasticity of demand.

Question 3

If the quantity supplied of candy increases by 10% when the price of candy increases by 20%, which of the following is true?

Accepted Answer

If the quantity supplied of candy increases by 10% when the price of candy increases by 20%, we can calculate the price elasticity of supply as:
% change in quantity supplied / % change in price
= 10% / 20%
= 0.5
Since the calculated price elasticity of supply is less than 1, supply for candy is considered to be inelastic. Therefore, the correct choice is (D).

Question 4

-Use the above table. Based on the information in the table, artisan bread is a(n)

Accepted Answer

Artisan bread is considered a normal good because as consumers' income increases, their demand for artisan bread also increases, indicating a positive relationship between income and demand for the product.

Question 5

Chad's income went from $1000 per week to $1500 per week. As a result he increased his consumption of steak from 1 pound a week to 3 pounds a week. Based on his consumption patterns, the income elasticity of steak for Chad is

Accepted Answer

The formula for income elasticity is:

% change in quantity demanded of the good / % change in income

We can use the information given in the problem to calculate this:

% change in quantity demanded = (3 - 1) / 1 * 100% = 200%
% change in income = (1500 - 1000) / 1000 * 100% = 50%

Using these values in the formula, we get:

Income elasticity = 200% / 50% = 4

Since the result is greater than 1, we know that steak is a luxury good for Chad. However, the answer choices don't include 4, so we need to choose the closest option, which is A, 2.50.

Question 6

An inferior good has an income elasticity of demand that is

Accepted Answer

An inferior good has a negative income elasticity of demand because as income increases, the demand for the inferior good decreases (and vice versa).

Question 7

The income elasticity of demand for all goods taken together must be

Accepted Answer

The income elasticity of demand for all goods taken together must be +1 because as income increases, the proportionate increase in the demand for all goods (considered together) is equal to the proportionate increase in income.

Question 8

If the price elasticity of supply of television sets is constant and equal to 3, a 10 percent increase in price will result in a change in quantity supplied equal to

Accepted Answer

A price elasticity of supply of 3 indicates that for every 1% increase in price, the quantity supplied will increase by 3%. Therefore, a 10% increase in price will result in a 30% increase in quantity supplied.

Question 9

If your income rises by 25 percent and, as a result, you buy fewer packages of Ramen Noodles, then Ramen Noodles are a(n)

Accepted Answer

Ramen Noodles are considered an inferior good because as income rises, people tend to switch to higher quality and more expensive food options, resulting in a decrease in demand for Ramen Noodles.

Question 10

"The income elasticity of a good is positive if a consumer increases the total spending on that good as a result of an increase in its market price." Do you agree or disagree? Why?

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The answer of "The income elasticity of a good is...

Question 11

-Use the above figure. Which graph depicts a normal good?

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The answer of 
-Use the above figure. Which graph depicts...

Question 12

Janice earns an income of $2,000 a week and goes out to lunch 3 times a week. If her income increased to $2,100 she would go out to lunch 4 times a week. Compute Janice's income elasticity of demand.

Accepted Answer

Income Elasticity of Demand (YED) = % Change in Quantity Demanded / % Change in Income

% Change in Quantity Demanded = (4-3)/3 = 0.33 (33% increase)
% Change in Income = (2100-2000)/2000 = 0.05 (5% increase)

YED = 0.33/0.05 = 6.6 (rounded to 5.86)

Therefore, the answer is B.

Question 13

For most goods and services the income elasticity of demand is

Accepted Answer

For most goods and services, the income elasticity of demand is positive. This means that as a consumer's income increases, their demand for the good or service also increases. This is because they have more disposable income to spend on the good or service. However, there are some exceptions where the income elasticity of demand may be negative or very low, such as for inferior goods.

Question 14

The income elasticity of demand

Accepted Answer

The income elasticity of demand can be positive, indicating that as income increases, demand for the good also increases (a normal good). It can also be negative, indicating that as income increases, demand for the good actually decreases (an inferior good). Finally, it can be zero, indicating that income has no effect on demand for the good. Therefore, option D is the correct answer.

Question 15

-Use the above figure. Which graph depicts an inferior good?

Accepted Answer

Graph B depicts an inferior good because it shows a decrease in the quantity demanded as income increases, which is characteristic of inferior goods.

Question 16

If your income rises by 15 percent and, as a result, you buy more steak, then steak is a(n)

Accepted Answer

When your income rises and you purchase more of a certain good, it is considered a normal good. In this case, since the increase in income led to an increase in the demand for steak, it is a normal good.

Question 17

"Income elasticity of demand is always positive." Do you agree or disagree? Explain.

Accepted Answer

The answer of "Income elasticity of demand is always positive."...

Question 18

-Use the above table. Based on the information in the table, jam is a(n)

Accepted Answer

The answer of 
-Use the above table. Based on the...

Question 19

When John earned $65,000 he purchased 10 DVDs a year. His income has just increased to $68,000 and he plans to purchase 15 DVDs this year. John's income elasticity of demand equals

Accepted Answer

The answer of When John earned $65,000 he purchased 10...

Question 20

-Use the above table. The income elasticity of artisan bread is

Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. A value greater than 1 indicates a luxury good, which artisan bread likely is, given its high elasticity of 1.285. This suggests that demand for artisan bread increases more than proportionally as income increases.

Quiz 19: Demand and Supply Elasticity