Refer to Figure 10-4. Which of the following is consistent with ...

[future617RT]

Refer to Figure 10-4. Which of the following is consistent with the graph depicted?
 
  A) an increase in the proportion of income after net taxes used for consumption
  B) an increase in transfer payments to households
  C) an increase in household income
  D) an increase in tax revenues collected by the government

Question 2

When Frank's income rises from 29,000 to 34,000 per year, he increases his purchases of tomatoes from 20 pounds to 28 pounds per year.
 
  What is Frank's income elasticity of demand for tomatoes? (Use the midpoint formula.) According to Frank, are tomatoes an inferior or normal good?

[meryzewe]

Answer to Question 1

A

Answer to Question 2

Percentage change in quantity demanded = (28-20)/24 = 8/24 = 33.3
Percentage change in income = (34,000 - 29,000)/31,500 = 5,000/31,500 = 15.9 . Therefore, income elasticity of demand = (33.3/15.9) = 2.1

Because Frank increased his demand for tomatoes when his income increased, he views tomatoes as a normal good. Therefore, his income elasticity of demand for tomatoes is positive.