The income elasticity of demand for haircuts is 1.5, and the income elas-ticity of demand for food is 0.14 . You take a weekend job, and the income you have to spend on food and haircuts doubles
If the prices of food and haircuts remain the same, will you double your expenditure on haircuts and double your expenditure on food? Explain why or why not.
Your expenditure on haircuts will more than double because the income elasticity of demand exceeds 1.0 . Your expenditure on food will not double because the income elasticity of demand is less than 1.0 . Only if the income elasticity of demand equals 1.0 will the expenditure on a good or service change proportionally with income.
You might also like to view...
Which of the following statements is true?
a. Antitrust policies are government policies designed to reduce the profitability of a monopoly and push production closer to the social optimum. b. Antitrust laws can promote greater competition. c. Average cost pricing sets price equal to marginal cost, where the demand curve intersects the marginal cost curve. d. Both antitrust policies are government policies designed to reduce the profitability of a monopoly and push production closer to the social optimum and antitrust laws can promote greater competition are true.
For the simple case of a production function with two inputs in which the inputs are perfect complements, each isoquant is represented by:
A) a vertical line. B) a horizontal line C) a downward sloping straight line. D) a line that forms a right angle.