Answered: Data collected from the economy of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Using the income elasticity of demand to characterize goods

Data collected from the economy of Pokerville reveals that a 15% decrease in income leads to the following changes:

•	A 9% increase in the quantity of spades demanded
•	A 17% decrease in the quantity of chips demanded
•	A 29% decrease in the quantity of aces 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 its income elasticity, indicate whether each good is 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 confers important information.)

Good	Income Elasticity of Demand	Normal or Inferior Good
Spades	-1.67 / -1.6 / 0.6 / 1.67	Normal / Inferior
Chips	-1.13 / -0.88 / 0.88 / 1.13	Normal / Inferior
Aces	-1.93 / -0.52 / 0.52 / 1.93	Normal / Inferior

Which of the following three goods is most likely to be classified as a luxury good ?

Chips

Spades

Aces

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