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Chapter 5: Problem 3

Some studies suggest that "tooth extraction" is an inferior good. Which measure of elasticity (price elasticity of demand, price-elasticity of supply, income elasticity, or cross-price elasticity) would provide evidence to support this claim? What would we look for in this elasticity measure to determine if tooth extraction were inferior?

Short Answer

Expert verified
The 'Income Elasticity of Demand' is the measure of elasticity needed to verify whether tooth extraction is an inferior good. If the income elasticity of demand is negative, it would suggest that tooth extraction is indeed an inferior good, as the demand for it decreases with an increase in income.

Step by step solution

01

Understanding the 'Inferior Good' and 'Income Elasticity of Demand'

An 'inferior good' refers to a product whose demand decreases as the consumer's income grows. The 'income elasticity of demand' is a measure of how the quantity demanded of a good responds to a change in income. Mathematically, it is the percentage change in quantity demanded divided by the percentage change in income. It is represented by \( \varepsilon_Y = \frac{%\Delta Q}{%\Delta Y} \), where \( \varepsilon_Y \) is the income elasticity of demand, Q is the quantity demanded, and Y represents income.
02

Identifying the Measure of Elasticity

To verify whether 'tooth extraction' is an inferior good, one must look at the 'income elasticity of demand'. This measure can depict the relationship between the change in income and the consequent change in demand.
03

Interpretation of the Income Elasticity of Demand

If the income elasticity of demand for tooth extraction is negative, it implies that as consumer income increases, the demand for tooth extraction decreases. This would confirm that tooth extraction is an inferior good.

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Most popular questions from this chapter

Three Guys Named Al, a moving company, is contemplating a price hike. Currently, they charge \(\$ 30\) per hour, but Al thinks they could get \(\$ 40 .\) Al disagrees, saying it will hurt the business. Al, the brains of the outfit, has calculated the price elasticity of demand for their moving services in the range from \(\$ 30\) to \(\$ 40\) and found it to be 0.5 a. Should they do as Al suggests and raise the price? Why or why not? b. Currently, Three Guys is the only moving company in town. Al reads in the paper that several new movers are planning to set up shop there within the next year. Twelve months from now, is the demand for Three Guys' services likely to be more elastic, less elastic, or the same? Why?

In February, \(2003,\) Germany's patent office proposed a solution to reimburse copyright holders for illegal digital file sharing: charging personal computer manufacturers a fee of \(\$ 13\) per computer that would go into a special fund to reimburse the copyright holders. Two computer makers-Fujitsu-Siemens and HewlettPackard- -claimed that imposing the fee would do great injury to them because they would be unable to pass any of the fee onto consumers. Under what assumptions about the demand curve would the computermakers' claim be true? Is this assumption realistic?

Sketch a demand curve that is unit elastic for a price change between \(\$ 9\) and \(\$ 11 .\) Assume that the quantity demanded is 110 when price is \(\$ 9 .\) You'll have to determine the quantity demanded when price is \(\$ 11\)
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