Give an example of income elasticity of demand for a normal good and an inferior good. Calculate a sample income elasticity of demand for each.
What will be an ideal response?
: Examples will vary but should show a thorough understanding of how income elasticity of demand relates to normal goods and inferior goods. For example, the income for Jacksonville, FL could increase over a 6-month period by 8 percent. During this time, the demand for golf clubs could increase by 12 percent. The resulting income elasticity of demand is +1.5 (+12% ¸ +8% = +1.5%). The golf clubs are a normal good because income and demand move in the same direction. The income for citizens of Latvia could increase 10 percent in one year. During this period, the demand for fast-food restaurants could decrease by 20 percent. The resulting income elasticity of demand is –2 (+20% ¸ –10% = –2). The fast-food restaurants are an inferior good because income and demand move in opposite directions.
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The demand curve faced by a monopolistically competitive firms is
A) horizontal. B) vertical. C) downward sloping. D) unitary elastic.
Refer to the above figure. The firm will just be covering all of its variable cost but none of its fixed cost
A) when the price equals $1. B) when the price equals $2. C) when the price equals $4. D) at prices between $1 and $2.
Suppose there are 1,000 firms in a perfectly competitive market and each maximizes profit at 25 units of output when market price is $1.00 per unit. One of the points on the market supply curve must be at:
A. Price = $1 and Quantity supplied = 25,000. B. Price = $25 and Quantity supplied = 24,000. C. Price = $25 and Quantity supplied = 125. D. Price = $1 and Quantity supplied = 125.
Answer the question based on the following data, using year 1 as the base year. All dollars are in billions.
Refer to the above data. Real GDP in year 4 was approximately:
A.
$3,989 billion
B.
$3,562 billion
C.
$3,774 billion
D.
$3,494 billion