1.Economists distinguish between normal and inferior goods using a. price elasti
ID: 1184094 • Letter: 1
Question
1.Economists distinguish between normal and inferior goods using a. price elasticity of demand b. price elasticity of supply c. income elasticity of demand d. cross-price elasticity of demand e. tax incidence 2. An inferior good is one for which demand increases as a. price decreases b. price increases c. income increases d. income decreases e. the price of a related good decreases 3. Luxury goods are a. price inelastic b. income inelastic c. income elastic d. goods with negative income elasticity e. goods with positive price elasticity 4.The percentage change in the demand for film divided by the percentage change in the price of cameras indicates a. the cross-price elasticity of demand between film and cameras b. the cross-price elasticity of demand for photographs c. the price elasticity of demand for film d. the price elasticity of demand for cameras e. nothing because the two goods fall into the broadly defined category of photographic equipment 5.A 20% increase in the price of rubber ducks leads to a 10% decrease in the quantity demanded of soap. Therefore: a. The two goods are unrelated b. The two goods are substitutes c. The two goods are complements d. The demand for rubber ducks is price elastic e. The supply of soap is inelastic 6.Using the midpoint method, the price elasticity of demand for a good is computed to be approximately 2. Which of the following events is consistent with a 0.1 percent increase in the price of the good? a. The quantity of the good demanded decreases from 250 to 150. b. The quantity of the good demanded decreases from 200 to 100. c. The quantity of the good demanded decreases by 0.05 percent. d. The quantity of the good demanded decreases by 0.2 percent. 7..According to the law of diminishing marginal utility, the marginal utility of my fourth ice-cream is a. Less than the marginal utility of my third ice-cream b. Less than the marginal utility of my fifth ice-cream c. More than the marginal utility of my third ice-cream d. More than the marginal utility of my second ice-cream e. Less than the marginal utility of my sixth ice-creamExplanation / Answer
Inferior goods are those goods whose demand increases when income of the consumer decreases. Whereas Normal good are those goods whose demand increases when consumer income increases. So,<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
1. Correct answer is (c) income elasticity of demand, as it measures the change in quantity demanded of good as income of consumer changes.
2. Correct answer is (d) income decreases.
3. Correct answer is (c) income elastic, as an increase in income increases the demand for luxury goods too much. It is +ve in nature.
4. Correct answer is (a) the cross-price elasticity of demand between film and cameras as both are complementary and affect the demand for each other.
5. Correct answer is (c) the two goods are complements, as the fall in demand for one leads to a fall in demand for the other.
6. Correct answer is (d) the quantity of the good demanded decreases by 0.2 percent, as elasticity is calculated as change in quantity divided by change in price which comes out 2 in this case.
7. Correct answer is (a) less than the marginal utility of my third ice-cream, as the marginal utility keeps on falling after every ice cream.
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