The income elasticity of demand for shoes is estimated to be \(1.50 .\) We can conclude that shoes a. have a relatively steep demand curve. b. have a relatively flat demand curve. c. are a normal good. d. are an inferior good.

Short Answer

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The income elasticity of demand for shoes is 1.50, which is greater than 1. This indicates that the demand for shoes is income elastic and people buy more shoes when their income increases. Therefore, shoes are a normal good. However, the elasticity of demand does not provide information about the steepness or flatness of the demand curve, so we cannot conclude options A or B. The correct answer is c. are a normal good.

Step by step solution

01

Definition of Income Elasticity of Demand

Income elasticity of demand measures the responsiveness of the quantity demanded of a good to the change in the income of the buyers. The formula for income elasticity of demand (E) is: \(E = \frac{\% \text{change in quantity demanded}}{\% \text{change in income}}\).
02

Interpretation of Income Elasticity of Demand

If E > 1, demand for the good is income elastic (responsive to income changes), and the good is considered a normal good. If E < 1, demand for the good is income inelastic (less responsive to income changes), and the good is also a normal good. If E < 0, demand for the good decreases as income increases, and the good is considered an inferior good. In this case, the income elasticity of demand for shoes is 1.50 (E = 1.50), which is greater than 1.
03

Determining Demand Curve and Type of Good

Since the income elasticity of demand is greater than 1 (E = 1.50), the demand for shoes is income elastic, which means people buy more shoes when their income increases. This indicates that shoes are a normal good. However, the elasticity of demand does not provide information about the steepness or flatness of the demand curve, so we cannot conclude options A or B. Therefore, the correct answer is: c. are a normal good.

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Most popular questions from this chapter

A manufacturer of Beanie Babies hires an economist to study the price elasticity of demand for this product. The economist estimates that the price elasticity of demand coefficient for a range of prices close to the selling price is greater than 1 The relationship between changes in price and quantity demanded for this segment of the demand curve is a. elastic. b. inelastic. c. perfectly elastic. d. perfectly inelastic. e. unitary elastic.

To determine whether two goods are substitutes or complements, an economist would estimate the a. price elasticity of demand. b. income elasticity of demand. c. cross-elasticity of demand. d. price elasticity of supply.

If the government wanted to raise tax revenue and shift most of the tax burden to the sellers, it would impose a tax on a good with a a. steep (inelastic) demand curve and a steep (inelastic) supply curve. b. steep (inelastic) demand curve and a flat (elastic) supply curve. c. flat (perfectly elastic) demand curve and a steep (inelastic) supply curve. d. flat (perfectly elastic) demand curve and a flat (elastic) supply curve.

The price elasticity of demand for a horizontal demand curve is a. perfectly elastic. b. perfectly inelastic. c. unitary elastic. d. inelastic. e. elastic.

Which of the following will result in an increase in total revenue? a. Price increases when demand is elastic. b. Price decreases when demand is elastic. c. Price increases when demand is unitary elastic. d. Price decreases when demand is inelastic.

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