3.1.2 .2 YED NOTES

What is income elasticity of demand?

• The responsiveness of the quantity demanded of a good to a change in the price of another good.

• The responsiveness of the quantity demanded of a good to a change in consumers' income.

• The change in price of a good in response to a change in market demand.

• The change in income of consumers in response to a change in the price of a good.

If a good is considered a normal good, what is the expected sign of its income elasticity?

• Negative

• Positive

• Zero

• Infinite

Which of the following is an example of an inferior good?

• Gourmet coffee

• Organic vegetables

• Second-hand clothing

• Luxury cars

How do you calculate income elasticity of demand?

• Percentage change in quantity demanded divided by percentage change in price

• Percentage change in price divided by percentage change in quantity demanded

• Percentage change in quantity demanded divided by percentage change in income

• Percentage change in income divided by percentage change in quantity demanded

Which factor does NOT influence income elasticities of demand?

• Consumer preferences

• Availability of substitutes

• The proportion of income spent on the good

• The time of year

What happens to the demand for a normal good when income increases?

• Demand decreases

• Demand remains unchanged

• Demand increases

• Demand fluctuates unpredictably

In the context of income elasticity, what does an elasticity greater than 1 indicate about a good?

• It is a necessity

• It is an inferior good

• It is a luxury good

• It is a staple good

What does an income elasticity of less than 0 indicate?

• The good is a normal good

• The good is a luxury

• The good is an inferior good

• The good is a necessity

Which of the following goods would likely have a high income elasticity of demand?

• Bread

• Salt

• Designer clothing

• Tap water

What does an income elasticity of demand equal to zero imply?

• The quantity demanded changes in proportion to income changes.

• The quantity demanded does not change as income changes.

• The good is a luxury.

• The good is an inferior good.