Refer to Table 6-7. a. Using the information in the table, ...

[mia]

Refer to Table 6-7.
 
  a. Using the information in the table, calculate the income elasticity of demand for good X and characterize the good. Use the midpoint formula.
  b. Can you calculate the income elasticity of demand for good Y? If you can, show your calculation and characterize the good. If you cannot, explain why.

Question 2

Public goods are distinguished by two primary characteristics. What are they?
 
  A) nonrivalry and nonexcludability B) market failure and high prices
  C) government intervention and low prices D) rivalry and exclusivity

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Answer to Question 1

a. The income elasticity of demand for good X = (3 / 3.5 ) / (20,000 / 40,000 ) = (0.8571 / 0.5 ) = 1.71. X is both a normal good and a luxury.
b. Since both income and Py change, you cannot calculate the income elasticity for good Y. The income elasticity can be measured if a change in income causes the quantity of Y purchased to change, holding everything else constant.

Answer to Question 2

A