Question : 6.4   Other Demand Elasticities 1) Income elasticity measures A) how a good’s : 1387542

6.4   Other Demand Elasticities

1) Income elasticity measures

A) how a good’s quantity demanded responds to change in the goods price.

B) how a good’s quantity demanded responds to change in the price of another good.

C) how a good’s quantity demanded responds to change in buyers’ incomes.

D) how a good’s quantity demanded responds to producers’ incomes.

2) Calculate the income elasticity if an 8 percent increase in income leads to a 4 percent increase in quantity demanded for organic produce.

A) -0.66

B) 0.5

C) 1.5

D) 2

3) Studies show that the income elasticity of demand for wine is approximately five. What does this mean?

A) A 1 percent decrease in the price of wine leads to a 5 percent increase in wine consumption.

B) A 1 percent increase in income leads to a 5 percent increase in wine consumption.

C) A 5 percent increase in income leads to a 1 percent increase in wine consumption.

D) Wine is a relatively elastic good.

4) Which of the following items is likely to have the highest income elasticity of demand?

A) a bus ride

B) a meal at Taco Bell

C) a vacation home in the Swiss Alps

D) a tank of gasoline

5) If you expect the economy is going to boom and average income in the economy will rise in the foreseeable future, the type of firm that would be able to increase its sales if your expectations are met is

A) one that sells an inferior good.

B) one that sells a necessity good.

C) one that sells a luxury good.

D) one that sells a price inelastic good.

6) Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton’s income elasticity of demand for potatoes is

A) negative, so Sefton considers potatoes to be an inferior good.

B) positive, so Sefton considers potatoes to be an inferior good.

C) positive, so Sefton considers potatoes to be a normal good and a necessity.

D) negative, so Sefton considers potatoes to be a normal good.

7) According to a study of the U.S. demand for alcoholic beverages, the price elasticity of demand for beer is -0.30. Which of the following could explain why the price elasticity of demand for beer is low?

A) Beer is an inferior alcoholic beverage.

B) More and more people are switching to wine and cocktails rather than beer.

C) The price of beer is relatively low and for many people it is a habit forming product.

D) There are only a few major suppliers of beer.

8) Economists estimated that the price elasticity of beer is -0.30 and the income elasticity of beer is 0.09. This means that

A) an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good.

B) an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

C) a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.

D) an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a necessity.

9) Using cross-sectional data from the two Housing Assistance Supply Experiment (HASE) sites—Brown County, Wisconsin, and St. Joseph County, Indiana, John Mulford of Rand Research estimates that the long-run “permanent” income elasticity of housing expenditures to be 0.45 for owners. Using this information, what is likely to happen to housing expenditures if the government increases income transfers to recipients in HASE sites?

A) Housing expenditures will increase significantly.

B) Housing expenditures in HASE sites significantly will fall as recipients moved out of these areas to higher-income areas.

C) Housing expenditures will increase, but not significantly.

D) Housing expenditures will decrease by a small amount.

10) Linesha, a college student working part-time, receives a wage increase. An avid movie buff, she increased her purchases of Blu-ray discs and reduced her purchases of DVDs. Based on this information,

A) DVDs and Blu-ray discs are substitutes.

B) Blu-ray discs are normal goods and DVDs are inferior goods.

C) DVDs and Blu-ray discs are normal goods.

D) the cross-price elasticity between DVDs and Blu-ray discs is negative.