For most goods and services, income elasticity of demand tends to be smaller in the short run than in the long run. However, a recent study shows that the demand for a durable good such as automobiles tends to be more income-elastic in the short run than in the long run. Explain why.
What will be an ideal response?
Since durable goods are typically consumed over a relatively longer period of time, consumers have a higher degree of flexibility to replace old goods with new ones. Demand for automobiles is a good example. Suppose that consumers' income falls due to a recession. Considering that the purchase of an automobile represents a large share of a consumer's budget, the consumer may put off the purchase of a new automobile until next year. In the long run, automobiles will eventually break down and new purchases will be made.
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Programs that require people to pay into a common pool and are in turn eligible to draw on benefits under certain circumstances are called:
A. social insurance programs. B. social benefit programs. C. common insurance programs. D. equitable payment programs.
If the MPC = 1, the spending multiplier is:
A. infinite. B. zero. C. 1. D. 10.
When the total external and internal costs of a transaction are taken into consideration, this is known as
A) public costs. B) average total costs. C) social costs. D) marginal costs.
In 1963 the U.S. poverty standard was equal to
A. $22,000 per year. B. $3,000 per year. C. $10,000 per year. D. $1,000 per year.