Question

48) The income elasticity of demand for skiing trips to Vermont is greater than one. Thus a trip to Vermont for skiing is ____

good.

A) a normal

B) an inferior

C) a unit elastic

D) a price elastic E) a price inelastic

49) If a 5 percent increase in income brings about a 10 percent decrease in the demand for a good, then the

A) good is a normal good.

B) good is an inferior good.

C) income elasticity of demand is 0.5. D) income elasticity of demand is 2.0. E) income elasticity of demand is 5.0.

50) If a 5 percent decrease in income leads to a 15 percent decrease in the demand for a good, the income elasticity of demand equals ____

A) -1/3 and the good is an inferior good.

B) 1/3 and demand for the good is income elastic.

C) 3 and the good is a normal good.

D) -3 and the demand for the good is income inelastic. E) 3 and the good is an inferior good

Answer 1

48. If the given elasticity of demand for trip to Vermont is greater than 1, then it is a normal good under which it can be categorized as luxury good or a superior good.

49 Income Elasticity Ed = %Change in Qty demanded/%Change in income

=-10/5 = -2

a negative income elasticity means the good is inferior commodity. An increase in income will result in decrease in quantity demanded.

50.

Income Elasticity Ed = %Change in Qty demanded/%Change in income

=-15/-5 = 3

The income elasticity is positive showing the good is a normal good. The correct option is C) 3 and the good is a normal good.