A survey taken by residents from the imaginary town of Turnville tells economists that the following changes result from a 16% fall in income: • An 8% increase in the quantity of hearts demanded • A 14% decrease in the quantity of chips demanded • A 24% decrease in the quantity of clubs demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on the income elasticities, classify each good as either a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign gives important information.) Good Income Elasticity of Demand Normal Good or Inferior Good Hearts Chips Clubs Which of the following three goods is most likely to be classified as a luxury good ? Clubs Hearts Chips
A survey taken by residents from the imaginary town of Turnville tells economists that the following changes result from a 16% fall in income: • An 8% increase in the quantity of hearts demanded • A 14% decrease in the quantity of chips demanded • A 24% decrease in the quantity of clubs demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on the income elasticities, classify each good as either a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign gives important information.) Good Income Elasticity of Demand Normal Good or Inferior Good Hearts Chips Clubs Which of the following three goods is most likely to be classified as a luxury good ? Clubs Hearts Chips
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
A survey taken by residents from the imaginary town of Turnville tells economists that the following changes result from a 16% fall in income:
| • | An 8% increase in the quantity of hearts demanded |
| • | A 14% decrease in the quantity of chips demanded |
| • | A 24% decrease in the quantity of clubs demanded |
Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on the income elasticities, classify each good as either a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign gives important information.)
|
Good
|
Income Elasticity of Demand
|
Normal Good or Inferior Good
|
|---|---|---|
| Hearts | ||
| Chips | ||
| Clubs |
Which of the following three goods is most likely to be classified as a luxury good ?
Clubs
Hearts
Chips
Expert Solution
Step 1
The relationship between a consumer's income and the demand for a given good is measured by income elasticity of demand. It could be positive, negative, or even indifferent to a certain product. In contrast to the price-demand relationship, consumer income and product demand are directly related.
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