The income elasticity of demand for movies in the United States is 3.41. If people's incomes decrease by 1 percent, what is the decrease in the quantity of movies demanded?
What will be an ideal response?
The income elasticity of demand = (percentage change in quantity demanded) ÷ (percentage change in income). Using the numbers in the problem gives 3.41 = (percentage change in quantity demanded) ÷ (1 percent). Rearranging the formula shows (percentage change in quantity demanded) =
(1 percent) × 3.41 = 3.41 percent. Therefore the quantity of movies demanded decreases by 3.41 percent.
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a. John Maynard Keynes b. Arthur Laffer c. A. W. Phillips d. Milton Friedman
In the above figure, the demand curve for Good A shifts from D1 to D2 in Graph A when the price of Good B changes from P1 to P2 in Graph B. We can conclude that
A. Good A and Good B are complements. B. Good A and Good B are unrelated. C. Good A and Good B are substitutes. D. Good A is a normal good but Good B is an inferior good.