Economics: Microeconomic Analysis - Reading 13: Elasticity - average, studying, household, computer, class

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Q10. Marko Tskitishvili, an economist, has been studying the drop in the price of the average household computer in the U.S. and wonders if computers should still be considered a luxury good or if it has now become a normal good. He conducts a survey of 500 people and finds the following:

	1998	2005
Avg. Household Income	$41,000	$53,000
Avg. Computers Purchased per Household	0.42	0.57

*Assume that 1998 is the base rate.

Based on the above data, Tskitishvili would conclude that a computer is a:

A)   luxury good with income elasticity of 1.01.

B)   luxury good with income elasticity of 1.18.

C)   normal good with income elasticity of 0.84.

Q11. If quantity demanded declines 20% when incomes fall 3%, this good is:

A)   a necessity.

B)   a luxury good.

C)   an inferior good.

Q12. Income elasticity is defined as the:

A)   change in quantity demanded divided by the change in income.

B)   percentage change in income divided by the percentage change in the quantity demanded.

C)   percentage change in the quantity demanded divided by the percentage change in income.

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