Question 1

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
A) negative, and the good is an inferior good.
B) negative, and the good is a normal good.
C) positive, and the good is an inferior good.
D) positive, and the good is a normal good.

Accepted Answer

The answer of Assume that a 4 percent decrease in...

Question 2

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
A) 0.32, and Tess regards handbags as inferior goods.
B) 0.32, and Tess regards handbags as normal goods.
C) 3.17, and Tess regards handbags as inferior goods.
D) 3.17, and Tess regards handbags as normal goods.

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 3

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
A) negative, and dog biscuits are a normal good.
B) negative, and dog biscuits are an inferior good.
C) positive, and dog biscuits are an inferior good.
D) positive, and dog biscuits are a normal good.

Accepted Answer

The income elasticity of demand is positive, indicating that Danita considers dog biscuits to be a normal good. Additionally, the fact that her quantity demanded increases in response to a rise in income further supports the idea that dog biscuits are a normal good.

Question 4

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. Your roommate still enjoys Ramen noodles very much and buys even more, but you plan to buy fewer Ramen noodles in favor of foods you prefer more. When looking at income elasticity of demand for Ramen noodles, yours would
A) be negative and your roommate's would be positive.
B) be positive and your roommate's would be negative.
C) be zero and your roommate's would approach infinity.
D) approach infinity and your roommate's would be zero.

Accepted Answer

The answer of You and your college roommate eat three...

Question 5

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-7. Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000?
A) 0.00
B) 0.41
C) 1.00
D) 2.45

Accepted Answer

The answer of Table 5-7
The following table shows a portion...

Question 6

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac­n­cheese, John's
A) is negative, and Bethany's is positive.
B) is positive, and Bethany's is negative.
C) is zero, and Bethany's approaches infinity.
D) approaches infinity, and Bethany's is zero.

Accepted Answer

Income elasticity of demand measures the extent to which the quantity demanded of a good changes in response to a change in consumer income. Since John's mac-n-cheese consumption increases when he has a full-time job (i.e. his income increases), his income elasticity of demand for mac-n-cheese is positive. On the other hand, Bethany's mac-n-cheese consumption decreases when she has a full-time job (i.e. her income increases), so her income elasticity of demand for mac-n-cheese is negative. Therefore, the best choice is B.

Question 7

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's
A) is negative, and Laura's is positive.
B) is positive, and Laura's is negative.
C) is zero, and Laura's is positive.
D) is zero, and Laura's is negative.

Accepted Answer

Marty's income elasticity of demand for bus tickets is negative because as his income increases, he buys fewer bus tickets. Laura's income elasticity of demand for bus tickets is positive because as her income increases, she buys more bus tickets.

Question 8

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-7. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?
A) 0.00
B) 0.50
C) 1.00
D) 1.50

Accepted Answer

Using the midpoint method, we can calculate the income elasticity of demand as follows:

%ΔQd = [(Qd2 - Qd1) / ((Qd1 + Qd2) / 2)] x 100
%ΔI = [(I2 - I1) / ((I1 + I2) / 2)] x 100

Income elasticity of demand = %ΔQd / %ΔI

At a price of $16, when income rises from $5,000 to $10,000, the quantity demanded changes from 25 to 40 units. Using the midpoint method, we can calculate the percentage change in quantity demanded as:

%ΔQd = [(40 - 25) / ((25 + 40) / 2)] x 100 = 31.58%

The percentage change in income can be calculated as:

%ΔI = [(10000 - 5000) / ((5000 + 10000) / 2)] x 100 = 50%

Thus, the income elasticity of demand is:

Income elasticity of demand = %ΔQd / %ΔI = 31.58% / 50% = 0.63

Since the income elasticity of demand is positive but less than 1, we can conclude that this good is a normal good with an income elasticity of demand of 0.63. Therefore, the correct answer is C) 1.00.

Question 9

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
A) considers athletic shoes to be necessities.
B) considers athletic shoes to be inferior goods.
C) considers athletic shoes to be normal goods.
D) has a low price elasticity of demand for athletic shoes.

Accepted Answer

Max's increase in income resulted in an increase in the quantity demanded of athletic shoes, indicating that athletic shoes are a normal good for him.

Question 10

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
A) increase by 2.5%, and X is an inferior good.
B) decrease by 2.5% and X is a normal good.
C) increase by 10% and X is an inferior good.
D) decrease by 10% and X is a normal good.

Accepted Answer

The answer of Suppose the income elasticity of demand is...

Question 11

The income elasticity of demand for caviar tends to be
A) high because caviar is relatively expensive.
B) low because caviar is packaged in small containers.
C) high because buyers generally feel that they can do without it.
D) low because it is almost always in short supply.

Accepted Answer

The answer of The income elasticity of demand for caviar...

Question 12

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
A) 0.43, and Jim regards tickets to sporting events as inferior goods.
B) 0.43, and Jim regards tickets to sporting events as normal goods.
C) 2.33, and Jim regards tickets to sporting events as inferior goods.
D) 2.33, and Jim regards tickets to sporting events as normal goods.

Accepted Answer

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

Question 13

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
A) negative, and the good is an inferior good.
B) negative, and the good is a normal good.
C) positive, and the good is a normal good.
D) positive, and the good is an inferior good.

Accepted Answer

The income elasticity of demand measures how the demand for a good changes in response to a change in income. A positive income elasticity indicates that as income increases, the quantity demanded of the good also increases, which suggests that the good is a normal good. The given information states that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of the good, which gives an income elasticity of demand of 0.5 (calculated as 2%/4% = 0.5). Since the income elasticity is positive and less than 1, the good is a normal good with a relatively low income elasticity of demand.

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, yours would
A) be negative, and your roommate's would be positive.
B) be positive, and your roommate's would be negative.
C) be zero, and your roommate's would approach infinity.
D) 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. As both you and your roommate were already consuming Ramen noodles before graduation, we can assume that the demand for Ramen noodles is not income inelastic (otherwise, your consumption would remain the same even after your income increased). Therefore, both you and your roommate are likely to increase your consumption of Ramen noodles as your income increases. However, as your roommate plans to buy fewer Ramen noodles in favor of other foods, her income elasticity of demand for Ramen noodles would be negative, indicating that her consumption of Ramen noodles would decrease as her income increases. On the other hand, as you still enjoy Ramen noodles very much and buy even more, your income elasticity of demand for Ramen noodles would be positive, indicating that your consumption of Ramen noodles would increase as your income increases.

Question 15

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
A) positive, so Joan considers hamburger to be an inferior good.
B) positive, so Joan considers hamburger to be a normal good and a necessity.
C) negative, so Joan considers hamburger to be an inferior good.
D) negative, so Joan considers hamburger to be a normal good but not a necessity.

Accepted Answer

Joan's income has decreased but her quantity demanded for hamburger has increased, indicating that hamburger is an inferior good for her. The negative income elasticity of demand supports this conclusion.

Question 16

Table 5-8
 
-Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is
A) 2.33, and good Y is a normal good.
B) -2.33, and good Y is an inferior good.
C) -0.43, and good Y is a normal good.
D) -0.43, and good Y is an inferior good.

Accepted Answer

The answer of Table 5-8
 
-Refer to Table 5-8. Using...

Question 17

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?
A) 0.00
B) 0.41
C) 1.00
D) 2.45

Accepted Answer

The answer of Table 5-7
The following table shows a portion...

Question 18

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-7. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20?
A) 0.56
B) 0.75
C) 1.33
D) 1.80

Accepted Answer

The answer of Table 5-7
The following table shows a portion...

Question 19

Table 5-7
The following table shows a portion of the demand schedule for a particular good at various levels of income.
 
-Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?
A) 0.56
B) 0.75
C) 1.33
D) 1.80

Accepted Answer

The answer of Table 5-7
The following table shows a portion...

Question 20

Table 5-8
 
-Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?
A) -3.5
B) -0.29
C) 0.29
D) 3.5

Accepted Answer

The answer of Table 5-8
 
-Refer to Table 5-8. Using...

Quiz 5: Elasticity and Its Application

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

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

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

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000?

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for macncheese, John's

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?

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

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

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

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good 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

Table 5-8 -Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20?

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

Table 5-8 -Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?

Quiz 5: Elasticity and Its Application

Assume that a 4 percent decrease in income results in a 6 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is

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

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

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $12, what is the income elasticity of demand when income rises from $5,000 to $10,000?

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for mac­n­cheese, John's

While in college, Marty and Laura each buy 15 bus tickets per month. After they graduate and have full-time jobs, Marty buys 0 bus tickets per month and Laura buys 28 bus tickets per month. Comparing income elasticity of demand for bus tickets, Marty's

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $16, what is the income elasticity of demand when income rises from $5,000 to $10,000?

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

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

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

Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good 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

Table 5-8 -Refer to Table 5-8. Using the midpoint method, the income elasticity of demand for good Y is

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, at a price of $8, what is the income elasticity of demand when income rises from $7,500 to $10,000?

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, when income equals $7,500, what is the price elasticity of demand between $16 and $20?

Table 5-7 The following table shows a portion of the demand schedule for a particular good at various levels of income. -Refer to Table 5-7. Using the midpoint method, when income equals $5,000, what is the price elasticity of demand between $8 and $12?

Table 5-8 -Refer to Table 5-8. Using the midpoint method, what is the income elasticity of demand for good X?

While in college, John and Bethany each buy five packages of mac-n-cheese per week. After they graduate and have full-time jobs, John buys six packages per week, but Bethany buys only two packages per week. When looking at income elasticity of demand for macncheese, John's