PRINCIPLES OF MICROECONOMICS (OER)
2nd Edition
ISBN: 9781947172357
Author: OpenStax
Publisher: OpenStax
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Textbook Question
Chapter 6, Problem 15CTQ
Income Effects depend on the income elasticity of demand for each good limit you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
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Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?
Give a real-world example
How do you think income elasticity affects a normal good versus an inferior good?
Consider some determinants of the price elasticity of demand:
• The availability of close substitutes
• Whether the good is a necessity or a luxury
• How broadly you define the market
• The time horizon being considered
A good with many close substitutes is likely to have relatively
demand, since consumers can easily choose to purchase one of the close
substitutes if the price of the good rises.
A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the
same, which one has the most elastic demand?
O Sports car
O Amputation procedures for diabetes sufferers
The price elasticity of demand for a good also depends on how you define the good.
Organize the goods found in the following table by indicating which is likely to have the most elastic demand, which is likely to have the least elastic
demand, and which will have demand that falls in between.
Chapter 6 Solutions
PRINCIPLES OF MICROECONOMICS (OER)
Ch. 6 - Jeremy is deeply in love with Jasmine. Jasmine...Ch. 6 - Take Jeremys total utility information in Exercise...Ch. 6 - Explain all the reasons why a decrease in a...Ch. 6 - As a college student you work at a part-time job,...Ch. 6 - Who determines how much utility an individual will...Ch. 6 - Would you expect total utility to rise or fall...Ch. 6 - Would you expect marginal utility to rise or fall...Ch. 6 - Is it possible for total utility to increase while...Ch. 6 - If people do not have a complete mental picture of...Ch. 6 - What is the rule relating the ratio of marginal...
Ch. 6 - As a general rule, is it safe to assume that a...Ch. 6 - Why does a change in income cause a parallel shift...Ch. 6 - Think back to a purchase that you made recently....Ch. 6 - The rules of politics are not always the same as...Ch. 6 - Income Effects depend on the income elasticity of...Ch. 6 - Praxilla, who lived in ancient Greece, derives...Ch. 6 - If a 10 decrease in the price of one product that...
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Similar questions
- The quantity demanded of good X rises from 130 to 145units as income rises from 2,000 to 2,500 a month. What is the income elasticity of demand for good X?arrow_forwardProve that price elasticity of demand is not the same as the slope of a demand curve.arrow_forwardIf the elasticity of demand for hamburgers equals 21.5 and the quantity demanded equals 40,000, predict what will happen to the quantity demanded of hamburgers when the price increases by 10 percent. If the price falls by 5 percent, what will happen?arrow_forward
- Explain in your own words what information the income elasticity of demand provides. If a good is an inferior good, what will the sign of the income elasticity of demand be? Explain.arrow_forwardHow do you think income elasticity affects a normal good versus an inferior good? Provide an example.arrow_forward4. Determinants of the price elasticity of demand Consider some determinants of the price elasticity of demand: • Availability of close substitutes • Whether the good is a necessity or a luxury • Whether the good is broadly defined • The proportion of a consumer's budget spent on the good • Time people have to adapt to new price changes A good with many close substitutes is likely to have relatively demand, because consumers can easily choose to purchase one of the close substitutes if the price of the good rises. A good's price elasticity of demand depends in part on how necessary it is relative to other goods. If the following goods are priced approximately the same, which one has the least elastic demand? O A heart valve for heart attack victims O Diamond necklace Price elasticity for a good depends on the share of a consumer's budget spent on a good. Other things being equal, which of the following goods has the most elastic demand? TV and Internet service plan O Toothbrush O…arrow_forward
- What is the relationship between price elasticity and position on the demand curve? For example, as youmove up the demand curve to higher prices and lower quantities, what happens to the measured elasticity? How would you explain that? Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy?arrow_forwardWhat is the relationship between price elasticity and position on the demand curve? For example, as youmove up the demand curve to higher prices and lower quantities, what happens to the measured elasticity? How would you explain that? Income effects depend on the income elasticity of demand for each good that you buy. If one of the goods you buy has a negative income elasticity, that is, it is an inferior good, what must be true of the income elasticity of the other good you buy? Needs explanationarrow_forwardImagine your income increases and you find that you buy more coffee. What is true about your income elasticity of demand (Ei) and how you perceive coffee? Ei > 0 and you view coffee as an inferior good Ei > 0 and you view coffee as a normal good Ei < 0 and you view coffee as an inferior good Ei < 0 and you view coffee as a normal goodarrow_forward
- Assume that you work in a movie theater and you want to increase revenue at the theater after the pandemic. The pandemic has caused people to find many activities that are alternatives to going to the movie theater. Fill in the blanks below with the words that best complete the sentences: Because consumers have found more substitutes for going to the movie theater, price elasticity of demand for movie tickets is more likely to be [ elastic or inelastic ]. Because of this price elasticity of demand, you should [increase or decrease] the price of movie tickets if you want to increase revenue.arrow_forwardSuppose income goes up from $50.000 to $60.000 while the demand for a good rises from 100 units to 125 units, what is the income elasticity of demand? Is the good a normal good or an inferior good? Explain.arrow_forwardExplain in your own words what information the income elasticity of demand provides. If a good is an inferior good, what will the sign of the income elasticity of demand be? Explain. If a good is a normal good, what will the sign of the income elasticity of demand be? Explain. Suppose consumers experience an increase in income. If the income elasticity of demand is equal to 1.6, what will happen to the demand for new cars? As a result of the increase in income, holding other things constant, what will happen to new car prices. Suppose consumers experience an increase in income. If the income elasticity of demand is equal to -1.6, what will happen to the demand for used cars? As a result, holding other things constant, what will happen to the price of used cars?arrow_forward
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