Microeconomics
2nd Edition
ISBN: 9781259813337
Author: KARLAN, Dean S., Morduch, Jonathan
Publisher: Mcgraw-hill Education,
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Question
Chapter 4, Problem 21PA
To determine
(a)
To ascertain whether the good is inferior of normal. Also, to determine whether the good is income-elastic or income inelastic.
To determine
(b)
To ascertain whether the good is inferior of normal. Also, to determine whether the good is income-elastic or income inelastic.
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Assume that the income elasticity of demand for hot dogs is - 1.25 and that the income elasticity of demand for lobster is 1.25. What will happen to each good's demand curve as income goes up?
4-2
. Answer the following questions.
Name a good you consume for which your income elasticity of demand is positive. What happens when your income increases?
Name a good you consume for which your income elasticity of demand is negative. What happens when your income increases?
+]
A survey taken by residents from the imaginary town of Draw City tells economists that the following changes result from a 17% rise in income:
•A 30% increase in the quantity of clubs demanded
.A 13% decrease in the quantity of hearts demanded
•A 12% increase in the quantity of tokens 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
Clubs
Normal Good or Inferior Good
Hearts
Tokens
Which of the following three goods is most likely to be classified as a luxury good?
Tokens
O Clubs
Hearts
Chapter 4 Solutions
Microeconomics
Ch. 4 - You are advising a coffee shop manager who wants...Ch. 4 - Prob. 2RQCh. 4 - You are working as a private math tutor to raise...Ch. 4 - You are working as a private math tutor to raise...Ch. 4 - You have been hired by the government of Kenya,...Ch. 4 - Prob. 6RQCh. 4 - Which will have a more price-elastic supply over...Ch. 4 - Certain skilled labor, such as hair cutting,...Ch. 4 - Although we could describe both the cross-price...Ch. 4 - Name two related goods you consume that would have...
Ch. 4 - Prob. 11RQCh. 4 - In France, where cheese is an important and...Ch. 4 - Prob. 13RQCh. 4 - Prob. 14RQCh. 4 - When the price of a bar of chocolate is $1, the...Ch. 4 - Prob. 2PACh. 4 - Three points are identified on the graph inÂ...Ch. 4 - Prob. 4PACh. 4 - In each of the following instances, determine...Ch. 4 - In each of the following instances, determine...Ch. 4 - Problems 7 and 8 refer to the demand schedule...Ch. 4 - Problems 7 and 8 refer to the demand schedule...Ch. 4 - Prob. 9PACh. 4 - Prob. 10PACh. 4 - Prob. 11PACh. 4 - Prob. 12PACh. 4 - Use the graph in Figure 4P-3 to calculate the...Ch. 4 - If the price of a haircut is $15, the number of...Ch. 4 - Prob. 15PACh. 4 - In each of the following instances, determine...Ch. 4 - Prob. 17PACh. 4 - Prob. 18PACh. 4 - For each of the following pairs, predict whether...Ch. 4 - Prob. 20PACh. 4 - Prob. 21PA
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Similar questions
- (Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of demand measures, for a given price, the __________ in quantity demanded divided by the __________ income from which it resulted. b. If a decrease in the price of one good causes a decrease in demand for another good, the two goods are __________. c. If the value of the cross-price elasticity of demand between two goods is approximately zero, they are considered __________.arrow_forwardData collected from the economy of Royal City reveals that a 16% Increase In Income leads to the following changes: • A 6% Increase In the guantity of horses demanded • A 14% decrease in the quantity of clubs demanded • A 29% Increase In the quantity of dlamonds 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 Inferlor Good Horses Clubs Diamonds Which of the following three goods is most likely to be classiried as a luxury good ? O Dlamonds O Horses O Clubsarrow_forward4. Determinants of the price elasticity of demand Consider some determinants of the price elasticity of demand: • Availability of close substitutes • Whether the good is a necessity or a luxury • Whether the good is broadly defined • The proportion of a consumer's budget spent on the good • Time people have to adapt to new price changes A good with many close substitutes is likely to have relatively demand, because consumers can easily choose to purchase one of the close substitutes if the price of the good rises. A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? O A heart valve for heart attack victims O Diamond necklace Price elasticity for a good depends on the share of a consumer's budget spent on a good. Other things being equal, which of the following goods has the most elastic demand? TV and Internet service plan O Toothbrush O…arrow_forward
- If income elasticity of demand for a good is positive, we say that good is a normal good. You can use the following approach to calculate the income elasticity of demand for a good: Group of answer choices % change in quantity supplied / % change in income % change in income / % change in quantity demanded % change in quantity demanded / % change in income % change in quantity demanded / % change in income tax ratesarrow_forwardSuppose that when the average family income falls from $40,000 per year to $30,000 per year, the average family’s purchase of toilet paper rises from 100 rolls to 103 rolls per year. The income elasticity of demand for toilet paper is -0.10; Toilet paper is an inferior good, and the demand for toilet paper is income inelastic. +9.7; Toilet paper is a normal good, and the demand for toilet paper is income elastic.arrow_forwardAnswer the next 2 questions according to information below: Suppose that Consumer A's demand for the good (commodity) X has increased in 16 per cent. Because the price of the close substitute good Y has increased in 8 per cent since and his demand for Y has decreased in 2 per cent. In that period of time, his own income has increased in 4 per cent and we know that this affected his demand levels. Calculate the cross elasticity of demand for goods X and Y.(Write below only the magnitude value: A positive integer). *arrow_forward
- A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? O Amputation procedures for diabetes sufferers O Yacht The price elasticity of demand for a good also depends on how you define the good. Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic demand, and which will have demand that falls in between. Categories Most Elastic In Between Least Elastic Food Red bell peppers less Vegetables more The price elasticity of demand is also affected by the given time horizon. no more, nor less, Compared to the short-run demand for oil, the demand for oil in the long run will tend to be elastic.arrow_forwardSuppose the income elasticity of demand for food is 0.45 and the price elasticity of demand is 1.00. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $ 25,000. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity. Felicia's consumption of food would decrease by units. ( Enter your response rounded to two decimal places.) Suppose that Felicia gets a tax rebate of $2,500 to ease the effect of the sales tax. What would her consumption of food be now? (Again, use an arc income elasticity to answer this question instead of a point income elasticity.) Felicia's consumption of food would now be 4,175.18 units. (Enter your response rounded to two decimal places.) Is she better or worse off when given a rebate equal to the sales tax payments?…arrow_forwardSuppose the income elasticity of demand for food is 0.45 and the price elasticity of demand is - 1.00. Suppose also that Felicia spends $10,000 a year on food, the price of food is $2, and that her income is $25,000. If a sales tax on food caused the price of food to increase to $2.50, what would happen to her consumption of food? Because a large price change is involved, use the arc elasticity to measure the price elasticity of demand rather than a point elasticity. Felicia's consumption of food would decrease by 1000.00 units. (Enter your response rounded to two decimal places.) Suppose that Felicia gets a tax rebate of $2,500 to ease the effect of the sales tax. What would her consumption of food be now? (Again, use an arc income elasticity to answer this question instead of a point income elasticity.) Felicia's consumption of food would now be 4,175.18 units. (Enter your response rounded to two decimal places.) Is she better or worse off when given a rebate equal to the sales tax…arrow_forward
- If the price elasticity of demand for Good A is -0.15 and the price increases from $4 to $6. Calculate the percentage change in the quantity demanded of Good A using mid-point method.Answer: The percentage change in the quantity demanded of Good A is __________ percent.arrow_forwardIf income increases and the demand for good decreases, then is good X a normal or inferior good? Is the income elasticity of demand for good X positive or negative?arrow_forwardIf the price of product A falls by 15 percent and the quantity demanded for product B falls by 30 percent, a. find the cross elasticity of demand for these two goods. Show your work. b. Are the products substitutes or complements? Why? c. Are the products weak or strong substitutes or complements? Why? Suppose that Mrs. Baker is currently exhausting her money income by purchasing 10 units of X at a price of $10 each and 8 units of Y at a price of $6 each. The marginal utility of the last unit of X is 30 and for Y is 28. These data suggest that Mrs. Baker should either Three Options: 1. Buy less Y and more X 2. Buy less X and more Y 3. Stay with her current selection. Pick one of the three above options as your answer and justify (explain) your answer below:arrow_forward
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