ANSWERS MGE PRACTICE QUESTIONS FROM PPTCHAPTER 61.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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