Suppose good x has a negative income elasticity of demand. This implies that good x is A. a normal good B. a necessity C. an inferior good D. a luxury Suppose good x has a positive income elasticity of demand. This implies that good X could be I. a normal good II. a necessity III. An inferior good IV. a luxury A. only B. and (ii) only C. (i), (ii), and (iv) only D. (ii) only For which of the following types of goods would the income elasticity of demand be positive and relatively large? A. all inferior goods B. all normal goods C. goods for which there are many complements D. luxuries Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good the elasticity of demand for the good is A. negative, and the good is an inferior god. B. 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 Refer to Table 4-4. Which supply schedules the law of supply? A. Firm A’s only B. Firm B’s C’s and Firm only D. Firm B’s and Firm D’s only
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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