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During an economic boom, should investors invest in an industry that produces goods whose demand is income elastic or one in which the demand is income inelastic?

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An industry that produces a good whose demand is income elastic will experience a greater percentage rise in the quantity demanded than an industry where the demand is income inelastic. Therefore, investors should invest in industries where the demand is income elastic.

Suppose that average incomes decreased from $38,000 to $36,000, and the quantity demanded of a product increased from 45 to 55. What is the value of the income elasticity of demand?


A) -0.27
B) -3.7
C) -1.0
D) +0.27
E) +3.7

F) A) and C)
G) A) and E)

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Suppose that average incomes increased from $30,000 to $34,000, and the quantity demanded of a product increased from 45 to 55. What is the value of the income elasticity of demand?


A) +0.625.
B) +0.74.
C) -1.0.
D) +1.36.
E) +1.6.

F) None of the above
G) A) and E)

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E

What is income elasticity?


A) The change in the quantity supplied as a result of a change in price.
B) The responsiveness of the change in the quantity demanded to a change in the price of a product.
C) The change in the price of a product as a result of a change in supply.
D) The responsiveness of the quantity demanded to a given change in income.

E) A) and B)
F) None of the above

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The price elasticity of demand for keyboards is 2.5. If the percentage change in quantity demanded is 50% and the average price is $10, what is the change in price?

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The following graph shows the demand and supply for i-Pods. The following graph shows the demand and supply for i-Pods. a) What is equilibrium price and quantity? b) Suppose that a $20 per unit sales tax is placed on the product. Draw in the new supply curve labeled S<sub>tax</sub>. c) What is the new equilibrium price and quantity? d) What proportion of the tax is paid by the consumer, and what proportion is paid by the seller in this case? a) What is equilibrium price and quantity? b) Suppose that a $20 per unit sales tax is placed on the product. Draw in the new supply curve labeled Stax. c) What is the new equilibrium price and quantity? d) What proportion of the tax is paid by the consumer, and what proportion is paid by the seller in this case?

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a) $60 and 200
b) Se...

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The graph below shows the supply and demand for tickets to a Raptors basketball game. The graph below shows the supply and demand for tickets to a Raptors basketball game. -Refer to the graph above to answer this question. Which of the following statements is correct? A) If demand is D<sub>3</sub>, then all the tickets could not be sold. B) If demand in D<sub>2</sub>, then there would be a shortage of tickets. C) If the price of a ticket is $40 and demand is D<sub>2</sub>, then ticket scalping would result. D) If the price of a ticket is $40 and demand is D<sub>3</sub>, then ticket scalping would result. E) The supply curve is perfectly elastic and the demand curves are inelastic. -Refer to the graph above to answer this question. Which of the following statements is correct?


A) If demand is D3, then all the tickets could not be sold.
B) If demand in D2, then there would be a shortage of tickets.
C) If the price of a ticket is $40 and demand is D2, then ticket scalping would result.
D) If the price of a ticket is $40 and demand is D3, then ticket scalping would result.
E) The supply curve is perfectly elastic and the demand curves are inelastic.

F) A) and D)
G) A) and C)

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-Refer to the graph above to answer this question. What is the supply elasticity of S<sub>2</sub> in the $2.50 to $4.00 range? A) 1.15. B) 2.17. C) It is higher than the supply elasticity of S<sub>1</sub> in the same price range. D) It is lower than the supply elasticity of S<sub>1</sub> in the same price range. E) None of the choices are correct. -Refer to the graph above to answer this question. What is the supply elasticity of S2 in the $2.50 to $4.00 range?


A) 1.15.
B) 2.17.
C) It is higher than the supply elasticity of S1 in the same price range.
D) It is lower than the supply elasticity of S1 in the same price range.
E) None of the choices are correct.

F) D) and E)
G) B) and C)

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The graph below illustrates three demand curves. The graph below illustrates three demand curves. -Refer to the graph above to answer this question. Which of the following statements is correct? A) Demand curve D<sub>3</sub> is the most inelastic demand. B) Equilibrium price must be $50. C) If price is $30 and demand is D<sub>3</sub> then the quantity demanded is 720 units per day. D) Demand curve D<sub>1</sub> is more inelastic than D<sub>3</sub>. E) Demand curve D<sub>1</sub> is perfectly elastic. -Refer to the graph above to answer this question. Which of the following statements is correct?


A) Demand curve D3 is the most inelastic demand.
B) Equilibrium price must be $50.
C) If price is $30 and demand is D3 then the quantity demanded is 720 units per day.
D) Demand curve D1 is more inelastic than D3.
E) Demand curve D1 is perfectly elastic.

F) A) and B)
G) A) and C)

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The list below refers to the price elasticity of demand. 1) perfectly inelastic 2) perfectly elastic 3) unitary elasticity 4) elastic 5) inelastic -Refer to the information above to answer this question. What is a demand when a firm can sell a constant amount at either a higher or a lower price?


A) 1.
B) 2.
C) 3.
D) 4.
E) 5.

F) A) and C)
G) A) and E)

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-Refer to the graph above to answer this question. Which of the following statements is correct? A) The demand curve in I is perfectly elastic. B) The demand curve is II is unitary elastic. C) The demand curve in III is perfectly inelastic. D) The demand curve in I is unitary elastic. -Refer to the graph above to answer this question. Which of the following statements is correct?


A) The demand curve in I is perfectly elastic.
B) The demand curve is II is unitary elastic.
C) The demand curve in III is perfectly inelastic.
D) The demand curve in I is unitary elastic.

E) A) and B)
F) A) and C)

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The list below refers to the price elasticity of demand. 1) perfectly inelastic 2) perfectly elastic 3) unitary elasticity 4) elastic 5) inelastic -Refer to the information above to answer this question. What is a demand when a change in quantity leaves total revenue unchanged?


A) 1.
B) 2.
C) 3.
D) 4.
E) 5.

F) C) and D)
G) A) and D)

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How can the cross-price elasticity be used to determine whether two goods are complements or substitutes?

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The cross-price elasticity is the percen...

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Suppose that the price of Product A increased from $9 to $11 and the quantity demanded of Product B increased from 192 to 208. What is the value of the cross elasticity?


A) + 0.2.
B) + 0.4.
C) + 1.0.
D) + 2.5.
E) + 5.0.

F) None of the above
G) A) and D)

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What do products such as household electricity, tobacco and toothpicks have in common?


A) They are all inferior goods.
B) They all are likely to have incomes elasticities greater than one.
C) The demand for all three goods is elastic.
D) The demand for all three goods is inelastic.
E) They all have a large number of substitute goods.

F) B) and E)
G) C) and E)

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How can income elasticity be used to determine whether a good is normal or inferior?

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The sign of the income elastic...

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George is an art collector and he owns three Van Gogh paintings. George decides to destroy one of them. Explain why?

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The supply of Van Gogh paintings is perfectly inelastic. There are no substitutes. Destroying one of the paintings will decrease the supply. This will lead to an increase in price of the remaining paintings. George believes that the demand for Van Gogh paintings is inelastic in the market period; thus the increase in price will increase total revenue. 11eae11f_8ef1_36c0_92b4_49f5ac7a3e26_TB5691_00

Price1416182022Quantity Demanded220200180160140\begin{array}{c}\begin{array}{c} \text {Price}\\14\\16\\18\\20\\22 \end{array}\begin{array}{c}\text {Quantity Demanded}\\220 \\200 \\180 \\160 \\140 \end{array}\end{array} -Refer to the information above to answer this question. What is the elasticity of demand in the $20 to $22 range?


A) 0.02.
B) 0.7.
C) 1.4.
D) 2.1.
E) 3.33.

F) B) and C)
G) B) and E)

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If people spend a large percentage of their income on a particular product, which of the following statements is true?


A) The product has a large number of substitutes.
B) The price elasticity of demand for the product is high.
C) The income elasticity of demand for the product is low.
D) The elasticity of supply for the product is low.

E) None of the above
F) B) and C)

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Below are some data on price, income and demand for five different time periods.  Year  Income  Price of X  Quantity  Demanded  of X Price of Y  Quantity  Demanded  of Y 1$40000$14050$402002400001504040160340000150307014045000015040701605500001605090200\begin{array} { l l c c c c } \text { Year } & \text { Income } & \text { Price of X } & \begin{array} { l } \text { Quantity } \\\text { Demanded } \\\text { of } \mathbf { X}\end{array} & \text { Price of Y } & \begin{array} { l } \text { Quantity } \\\text { Demanded } \\\text { of Y }\end{array} \\1 & \$ 40000 & \$ 140 & 50 & \$ 40 & 200 \\2 & 40000 & 150 & 40 & 40 & 160 \\3 & 40000 & 150 & 30 & 70 & 140 \\4 & 50000 & 150 & 40 & 70 & 160 \\5 & 50000 & 160 & 50 & 90 & 200\end{array} -Refer to the information above to answer this question. What is the price elasticity of demand for product X between years 1 and 2?


A) 0.31.
B) 1.0.
C) 3.2.
D) 22.2.

E) B) and C)
F) A) and C)

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