Question

In: Economics

1. If good Z has an income elasticity of 1.0, then demand for good Z is...

1. If good Z has an income elasticity of 1.0, then demand for good Z is income __________ and the good is __________.

  

inelastic, normal

   

elastic, normal

   

unit elastic, normal

   

inelastic, inferior

   

elastic, inferior

2. If two goods are substitute goods,

  

the price elasticity of demand for both goods will be less than 1.

   

an increase in the price of one will cause a decrease in the demand for the other.

   

the price elasticity of demand for both goods will be greater than 1.

   

an increase in the price of one will cause an increase in the demand for the other.

Solutions

Expert Solution

Ans.1- (C)

An elasticity of 1 is said to be unitary elastic. If income elasticity is positive, then good is a normal good. If income elasticity if negative, then good is an inferior good.

Ans.2- (D)

Suppose A and B are two substitute goods. Then if price of A rises, people will switch from good A to good B and therefore demand for B will rise. Thus, an increase in the price of one will cause an increase in the demand for the other.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

if a good has a negative income elasticity of demand, this indicates that the good is...
if a good has a negative income elasticity of demand, this indicates that the good is A. substitute with another good B. Inferior C. Normal D. A complement with another good.
Assume the supply of a good is perfectly elastic and the income elasticity of demand is...
Assume the supply of a good is perfectly elastic and the income elasticity of demand is 13.7. When the income of households increases by 5%, the equilibrium quantity in the market will: Select one: a. increase by 13.7% b. decrease by 13.7*5% c. decrease by 13.7% d. increase by 13.7*5% e. increase by 5%
Suppose the own price elasticity of demand for good X is -5, its income elasticity is...
Suppose the own price elasticity of demand for good X is -5, its income elasticity is 2, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is 3. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 5 percent. percent b. The price of good Y increases by...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is -1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -3. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 4 percent. percent b. The price of good Y increases by...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is -1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -3. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 4 percent. _______percent b. The price of good Y increases by...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is...
Suppose the own price elasticity of demand for good X is -2, its income elasticity is 3, its advertising elasticity is 4, and the cross-price elasticity of demand between it and good Y is -6. Determine how much the consumption of this good will change if: Instructions: Enter your responses as percentages. Include a minus (-) sign for all negative answers. a. The price of good X decreases by 5 percent. ______ percent b. The price of good Y increases...
1.) the price elasticity of demand for margarine is -1.3 and the income elasticity of demand...
1.) the price elasticity of demand for margarine is -1.3 and the income elasticity of demand for margarine is -0.2. a. Based on these figures, is the demand for margarine elastic or inelastic? How can you tell? b. If the price of margarine falls by 5%, by what percentage will the quantity of margarine demanded change? Will it rise or fall? c. If the price of margarine falls by 5%, by what percentage will the total revenue from sales of...
Two goods are _____________ if their cross-price elasticity is 0.5. A good is a(n) ______ good if its income elasticity of demand is 0.5.
Two goods are _____________ if their cross-price elasticity is 0.5. A good is a(n) ______ good if its income elasticity of demand is 0.5.Group of answer choices：Weak substitutes: NecessityClose substitutes: LuxuryWeak complements: NormalClose complements: Inferior
The income elasticity of demand for haircuts is 1.5, and the income elasticity of demand for...
The income elasticity of demand for haircuts is 1.5, and the income elasticity of demand for food is 0.14. You take a weekend job, and the income you have to spend on food and haircuts doubles. If the prices of food and haircuts remain the same, will you double your expenditure on haircuts and double your expenditure on food? Explain why or why not. (33 points)
Based on your knowledge on income elasticity of demand, normal good and inferior good, discuss the...
Based on your knowledge on income elasticity of demand, normal good and inferior good, discuss the demand for luxury cars and bread (khubs) before February 2020 and after February 2020. Given today’s economic situation, would you advice the government to build more luxury car manufacturing plants or build green houses to produce food?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT