Suppose good x has a negative income elasticity of demand. this implies that good x is


Introductory for Economics for NBS S04/2017 spring 2016/2017 Mid Semester Test Answer All Questions Suppose good has a negative income elastichty ofdemand misimplesthat odxis C an inferior good. 8 suppose good xhasa positive incomeelasticity of demand. This implies that goodxcould an inferior good. B. and only C li, (i), and (lonly of demand be positive For which of the following types of goods would the income elasticity and relatively large? A. all inferior goods B al normal goods C goods for which there are many complements percent increase in income results in a 2 percent increase in the quantity Assume that a 4 of a good. The income elasticity of demand for the good is A negative, and the good is an inferior good. negative, and the good is a normal good. C positive, and the good is a normal good. D, positive, and the good is an inferior good. Supplied Sepelied LSupElied supplied 11. Refer to Table 4-4. Which supply schedules obey the law of supply? A. Firm As only B. Firm Bs, Firm Cs, and Firm Ds only C Firm As and Finm Cs conly D. Firm Bs and Firm

Answer

7. When a good has negative income elasticity of demand it implies that the demand for the good falls as income rises for eg. Consumption of Public transportation. Such a good is called an inferior good (C)

8. Since the demand for the good rises as income rises it is definitely a normal good. It could also be a necessary good (when the rise in demand for the good is less than the proportion rise in income) or a luxury good (when demand increases more than the proportion rise in income) depending on the income elasticity of demand. This the answer is (C)

9. For Luxury goods the rise in the demand is greater than the proportion of the rise in income. (d)

10. The income elasticity is positive and the good is a normal good. This follows from the definition of a normal good.

11.The law of supply states that the supply of a good should increase as price of the good rises. Hence the firm's B and D follow the law of supply. (D) For A the quantity supplied declines as price of the good increases and for C the quantity initially rises then falls again.

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