The income elasticity of demand for haircuts is 1.5, and the income elas-ticity of demand for food is 0.14 . You take a weekend job, and the income you have to spend on food and haircuts doubles
If the prices of food and haircuts remain the same, will you double your expenditure on haircuts and double your expenditure on food? Explain why or why not.
Your expenditure on haircuts will more than double because the income elasticity of demand exceeds 1.0 . Your expenditure on food will not double because the income elasticity of demand is less than 1.0 . Only if the income elasticity of demand equals 1.0 will the expenditure on a good or service change proportionally with income.
You might also like to view...
At harvest time the supply of wheat is perfectly inelastic. If the government taxes wheat at $1 a bushel, then
A) the seller pays the entire tax. B) the buyer pays the entire tax. C) the seller and the buyer split the tax evenly. D) the seller and the buyer split the tax but the seller pays more. E) no one pays the tax because the wheat must be harvested or it will go to waste.
What are the main influences on the FOMC federal funds rate decision?
What will be an ideal response?
A macroeconomist would be interested in the
a. general rise of prices b. decline of cheese prices c. fluctuation of oil prices d. sharp rise of coffee prices
If an unintended increase in business inventories occurs:
A. we can expect aggregate production to be unaffected. B. we can expect businesses to increase the level of production. C. we can expect businesses to lower the level of production. D. aggregate expenditures must exceed the domestic output.