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

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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.

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