1. You have been hired by the Liquor Barn to make beer purchase for Liquor Barn
ID: 1188336 • Letter: 1
Question
1. You have been hired by the Liquor Barn to make beer purchase for Liquor Barn stores in Kentucky. Suppose you find that the income elasticity of demand (Y) for Pabst Blue Ribbon brand beer is -.23 and the income elasticity of demand for Miller Lite brand beer is 1.4.
a. Interpret the value of Y=-.23 for Pabst Blue Ribbon brand beer and fully explain (Hint: Is this a normal or inferior good? Luxury or necessity?).
b. Interpret the value of Y=1.4 for Miller Lite brand beer and fully explain (Hint: Is this a normal or inferior good? Luxury or necessity?).
c. Given the economy is in a recession, based on these values for income elasticity, which brand should you stock more of and which brand should you stock less of and why?
2. when the price elasticity of demand is large, then
A. the product is more likely to be a necessity.
B. the responsiveness of quantity demanded to a change in price is small.
C. the percentage change in price divided by the percentage change in quantity demanded is large.
D. the responsiveness of quantity demanded to a change in price is large.
3. If the demand for a good is elastic, then total revenue
A. increases as price increases.
B. remains constant as quantity demanded increases.
C. increases as price decreases.
D. decreases as quantity demanded increases.
E. decreases as price decreases.
4. The principle of diminishing marginal utility say that
A. as more of a good or service is consumed, demand will decrease.
B. as more of a good or service is consumed, the price will rise.
C. the marginal utility of additional units consumed will increase.
D. the marginal utility of additional units consumed will decline.
Explanation / Answer
1)d
2)b
3)d
4)a
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