Income and Cross Elasticity of Demand

What is the formula for calculating income elasticity of demand?

Percentage change in quantity demanded divided by percentage change in income
Total quantity demanded divided by total income
Percentage change in income divided by percentage change in quantity demanded
Total income divided by total quantity demanded

What does the income elasticity of demand coefficient show for an inferior good?

A positive coefficient
No coefficient
A negative coefficient
A coefficient between 0 and 1

What is the difference between complementary goods and substitute goods in terms of cross elasticity of demand?

Both complementary and substitute goods have a negative cross elasticity of demand.
Complementary goods have a negative cross elasticity of demand, while substitute goods have a positive cross elasticity of demand.
Both complementary and substitute goods have a positive cross elasticity of demand.
Complementary goods have a positive cross elasticity of demand, while substitute goods have a negative cross elasticity of demand.

What does a positive income elasticity of demand coefficient indicate about a good?

It is a Giffen good
It is a normal good
It is an inferior good
It is a luxury good

What is the difference between luxury goods and income inelastic goods in terms of income elasticity of demand?

Luxury goods have a constant change in demand regardless of the change in income, while income inelastic goods have a variable change in demand in proportion to the change in income.
Luxury goods have a negative change in demand in proportion to the change in income, while income inelastic goods have a positive change in demand in proportion to the change in income.
Luxury goods have a greater change in demand in proportion to the change in income, while income inelastic goods have a smaller change in demand in proportion to the change in income.
Luxury goods have a smaller change in demand in proportion to the change in income, while income inelastic goods have a greater change in demand in proportion to the change in income.

What is the relationship between income and demand for inferior goods?

There is no relationship between income and demand for inferior goods.
As income increases, demand for inferior goods decreases.
As income decreases, demand for inferior goods decreases.
As income increases, demand for inferior goods increases.

A company sells luxury goods and notices that people's incomes are rising rapidly. How should the company adjust its product range to maximize revenue?

Focus more on luxury goods and less on inferior goods.
Increase the prices of all products in the range.
Keep the product range unchanged and wait for further market changes.
Reduce the production of luxury goods and focus on inferior goods.

A person's income has increased, and they decide to spend more on vacations. What type of good does this represent?

Inferior good
Income inelastic good
Luxury good
Necessity good

Apply the concept of cross elasticity of demand to determine the relationship between two products, given the following information: The price of bus tickets increases by 10%, and the demand for taxi rides increases by 5%. Are these products complements or substitutes?

Complements
Inferior goods
Substitutes
Unrelated goods

A person's income increases, and they decide to buy a car instead of using public transportation. Based on this information, classify public transportation as a normal good, normal luxury good, normal necessity, or inferior good.

Normal luxury good
Normal good
Inferior good
Normal necessity