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Author Question: Used car buyers believe a car is good quality when the seller signals the car's quality by offering ... (Read 61 times)

james

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on: Jun 29, 2018
Used car buyers believe a car is good quality when the seller signals the car's quality by offering a warranty because
 
  A) car sellers would never lie.
  B) car buyers are gullible.
  C) the signal cannot be false.
  D) a false signal can be costly to the seller.

Question 2

Jenny's weekly income increases from 500 to 650. As a result, she goes out for dinner one day a week instead of one day every other week. What is Jenny's income elasticity of demand for restaurant dinners?
 
  What will be an ideal response?


canderson530

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Reply #1 on: Jun 29, 2018
Answer to Question 1

D

Answer to Question 2

The income elasticity of demand = (percentage change in the quantity demanded)  (percentage change in income). Using the midpoint method to calculate the percentages, the percentage change in the quantity of meals demanded = (1.0 - 0.5 )  (0.75 )  100 = 66.67 percent and the percentage change in income (650 - 500 )  (575 )  100 = 26.1 percent. Therefore the income elasticity of demand equals (66.67 percent)  (26.1 percent) = 2.56.


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