Question

Barnes & Noble knows that the income elasticity for books is 1.44. Based on this information, and the information in the table, which of the following must be true?

The following table displays books sold by Barnes & Noble at the Southpoint mall in January and July.

January	July
1,000	2,000

• A.

  Books are inferior goods and income decreased between January and July

• B.

  Books are normal goods and income decreased between January and July

• C.

  Books are normal goods and income increased between January and July

• D.

  Books are inferior goods and income increased between January and July

Question

Jack, Jim, John, and Jose are shopping for alcohol for their party tonight. They can each purchase up to two bottles of liquor. The table below shows each person’s willingness to pay (WTP) for each of up to two bottles.

Potential Buyer	WTP for first bottle	WTP for second bottle
Jack	$17	$13
Jim	$16	$16
John	$15	$10
Jose	$20	$18

If bottles of liquor are priced at $15 each, what is the Total Consumer Surplus between the four?

• A.

  $12

• B.

  $8

• C.

  $5

• D.

  $15

Question

Which of the following statements is FALSE?

• A. Consider a country that produces only two goods: dogs and cats. Suppose it is impossible for this county to increase its production of dogs without producing fewer cats. In this case, its current output combination is efficient.
• B. If additional units of a good are produced at a constant opportunity cost, the production possibilities frontier would be bowed in.
• C. Two countries have agreed to trade desks for chairs. Country A has a lower opportunity cost of producing desks. In this case, Country B will specialize in chairs.
• D. If additional units of a good are produced at an increasing opportunity cost, the production possibilities frontier would be bowed out.

Question

Assume that the graphs in attachments figure represent the demand and supply curves for beef. Which panel best describes what happens in this market if there is a substantial increase in the price of leather? (Think about the relationship between beef and leather.)

• A. Panel (b)
• B. Panel (a)
• C. Panel (d)
• D. Panel (c)

Answer 1

1)

since positive income elasticity implies that the book is normal, not inferior as income effect is positive for normal goods and negative for inferior goods.

since the selling of books has been increased from January to July, hence income will increase also.

As income elasticity = % change in Q/ % change in income.

2)