Question

last year, joan bought 50 pounds of hamburger when her household income was $40,000. this year, her household income is $45,000 and joan bought 60 pounds of hamburger. holding everything else constant, joans income elasticity of demand is
o negative, so joan considers hamburger to be an inferior good.
o negative, so joan considers hamburger to be a normal good.
o positive, so joan considers hamburger to be a normal good.
o positive, so joan considers hamburger to be an inferior good.

question 24

in order to prove that motrin and ibuprofen are substitutes, one should measure the ____ and get a ____.
o price elasticity of demand; number less than 1 (in absolute value)
o price elasticity of demand; number greater than 1 (in absolute value)
o cross - price elasticity; negative number
o cross - price elasticity; positive number

Explanation:

Question 1

Step1: Recall income - elasticity formula

Income - elasticity of demand ($E_{I}$)=$\frac{\%\text{ change in quantity demanded}}{\%\text{ change in income}}$. When income increases and quantity demanded increases, $E_{I}> 0$ for normal goods. Joan's income is constant ($\$40,000$), but quantity demanded of hamburger increased from 50 pounds to 60 pounds.

Step2: Determine good type

Since quantity demanded of hamburger increased with no change in price (everything else constant), and income - elasticity of demand is positive (as quantity demanded increased), hamburger is a normal good for Joan.

Step1: Recall cross - price elasticity concept

Cross - price elasticity of demand ($E_{xy}$)=$\frac{\%\text{ change in quantity demanded of good }x}{\%\text{ change in price of good }y}$. For substitute goods, when the price of one good increases, the quantity demanded of the other good increases. So, $E_{xy}>0$.

Step2: Select the correct measure

To prove that Motrin and ibuprofen are substitutes, we measure the cross - price elasticity of demand and should get a positive number.

Answer:

positive, so Joan considers hamburger to be a normal good

Question 2