FLOPS: A)-1.13 B)-0.88 C)0.88 D)1.13 ACES: A)-1.93 B)-0.52 C)0.52 D)1.93 7. Usin
ID: 1166198 • Letter: F
Question
FLOPS: A)-1.13 B)-0.88 C)0.88 D)1.13
ACES: A)-1.93 B)-0.52 C)0.52 D)1.93
7. 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 clubs demanded . A 17% decrease in the quantity of flops 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 Clubs Flops Aces Income Elasticity of Demand Normal or Inferior Good Which of the following three goods is most likely to be classified as a luxury good? Aces O Clubs FlopsExplanation / Answer
Income elasticity of demand is given by ed = % change in Qd / % change in income
Since clubs income elasticity is negative, clubs are inferior goods. While the income elasticity of demand for flops and aces is positive, aces as well as flops are normal goods.
Luxuries are the goods that have highest income elasticity. This implies Aces are luxury goods
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