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ANSWERS MGE PRACTICE QUESTIONS FROM PPT CHAPTER 6 1. Answer = D . Income elasticity is calculated as -0.10/.2 = -.5. The negative income elasticity tells us that Ramen noodles are an inferior good. 2. Answer = C. The income elasticity = 2.4 = (% change quantity)/0.10. Solving for (% change in quantity) = + 24%. An increase in quantity demanded in response to an increase in income is associated with a normal good. 3. Answer = C . Cross-price elasticity is equal to the % change in demand divided by the % change in price. We know the cross-price elasticity equals 4 and price increases by 10%
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• Spring '08
• ISSE

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