Explain how it might be possible to have the demand for popcorn in a theater shift left just because you took $10 from Joe and gave it to Paul as they entered the theater. What general principle can we draw from this story?
What will be an ideal response?
While average income has not changed in the theater, Joe and Paul have different income elasticities for popcorn. Paul pocketed the money that Joe would have spent on popcorn so the demand for popcorn shifts left. This shows that a redistribution of income in an economy can affect markets even when total income does not change.
You might also like to view...
Which statement about the total variable cost curve is true?
a. It begins at the origin and increases before decreasing again. b. The total variable cost curve is the same at all levels of output. c. The total variable cost curve is increasing but at a decreasing rate. d. It begins at the origin and is always increasing. e. There is no such thing as a total variable cost curve.
Based on the table, the largest change in aggregate demand takes place during the ______.
a. change in government purchases
b. first change in consumption purchases
c. second change in consumption purchases
d. final change in consumption purchases
Figure 1A.1Refer to Figure 1A.1. If the hours worked per week are 30, the income per week is:
A. 50. B. 100. C. 150. D. 200.
Iron is required to make steel. Hence, the price elasticity of demand for iron by steel manufacturers will be
A) unit elastic. B) inelastic. C) elastic. D) perfectly elastic.