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Income Elasticity of Demand quiz #1

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  • Which good typically has the lowest income elasticity of demand: bread, caviar, or public transportation?
    Bread typically has the lowest income elasticity of demand because it is a necessity; demand changes little as income changes.
  • Which good typically has the highest income elasticity of demand: bread, caviar, or public transportation?
    Caviar has the highest income elasticity of demand because it is a luxury good; demand increases significantly as income rises.
  • If the income elasticity of a good is 0.8, what type of good is it?
    A good with an income elasticity of 0.8 is a normal necessity, since the value is positive but less than one.
  • What is the primary source of income for most people aged 20-35?
    Wages are the primary source of income for most people aged 20-35.
  • How does the level of a woman's income relative to that of a man affect the demand for normal and inferior goods?
    If a woman's income is higher relative to a man's, she is likely to demand more normal goods and fewer inferior goods.
  • What are two measures of wealth commonly discussed in economics: income and what?
    Two measures of wealth are income and assets.
  • If the income elasticity coefficient is positive, then the good is classified as what type of good?
    If the income elasticity coefficient is positive, the good is classified as a normal good.
  • An increase in income will ________ the demand for normal goods.
    An increase in income will increase the demand for normal goods.
  • Income elasticity of demand measures how what changes in response to changes in consumer income?
    Income elasticity of demand measures how quantity demanded changes in response to changes in consumer income.
  • If product Y is an inferior good, a decrease in consumer incomes will have what effect on its demand?
    If product Y is an inferior good, a decrease in consumer incomes will increase its demand.
  • What is the income effect of an increase in the price of salmon?
    An increase in the price of salmon reduces consumers' real income, potentially decreasing the quantity demanded of normal goods like salmon.
  • For a good that is considered a luxury, how does its demand respond to changes in consumer income?
    For a luxury good, demand increases more than proportionally as consumer income rises, meaning the income elasticity of demand is greater than one.
  • What does income elasticity of demand measure in microeconomics?
    Income elasticity of demand measures how the quantity demanded of a good responds to changes in consumer income, helping to distinguish between normal, luxury, necessity, and inferior goods.