chapter 05: aplia homework\ndata collected from the economy of cardtown reveals that an 18% decrease in…

chapter 05: aplia homework\ndata collected from the economy of cardtown reveals that an 18% decrease in income leads to the following changes:\n• a 6% decrease in the quantity of flops demanded\n• a 17% increase in the quantity of blats demanded\n• a 29% decrease in the quantity of sniks demanded\ncompute the income - elasticity of demand for each of the goods described, and select the appropriate value in the following table. then indicate whether the income elasticity for each good indicates that it is a normal good or an inferior good.\nhint: be careful to keep track of the direction of change. the sign of the income elasticity of demand can be positive or negative, and the sign confers important information.\ngood income elasticity of demand normal or inferior good\nflops\nblats\nsniks\nwhich of the following three goods is most likely to be classified as a luxury good?\nblats

chapter 05: aplia homework\ndata collected from the economy of cardtown reveals that an 18% decrease in income leads to the following changes:\n• a 6% decrease in the quantity of flops demanded\n• a 17% increase in the quantity of blats demanded\n• a 29% decrease in the quantity of sniks demanded\ncompute the income - elasticity of demand for each of the goods described, and select the appropriate value in the following table. then indicate whether the income elasticity for each good indicates that it is a normal good or an inferior good.\nhint: be careful to keep track of the direction of change. the sign of the income elasticity of demand can be positive or negative, and the sign confers important information.\ngood income elasticity of demand normal or inferior good\nflops\nblats\nsniks\nwhich of the following three goods is most likely to be classified as a luxury good?\nblats

Answer

Explanation:

Step1: Recall income - elasticity formula

The formula for income - elasticity of demand ($E_I$) is $E_I=\frac{%\text{ Change in Quantity Demanded}}{%\text{ Change in Income}}$.

Step2: Calculate income - elasticity for Flops

Given a 6% decrease in the quantity of flops demanded and an 18% decrease in income. $%\text{ Change in Quantity Demanded}=- 6%$ and $%\text{ Change in Income}=-18%$. Then $E_{I - Flops}=\frac{-6%}{-18%}=\frac{1}{3}\approx0.33$. Since $E_{I - Flops}>0$, flops are a normal good.

Step3: Calculate income - elasticity for Blats

Given a 17% increase in the quantity of blats demanded and an 18% decrease in income. $%\text{ Change in Quantity Demanded}=17%$ and $%\text{ Change in Income}=-18%$. Then $E_{I - Blats}=\frac{17%}{-18%}\approx - 0.94$. Since $E_{I - Blats}<0$, blats are an inferior good.

Step4: Calculate income - elasticity for Sniks

Given a 29% decrease in the quantity of sniks demanded and an 18% decrease in income. $%\text{ Change in Quantity Demanded}=-29%$ and $%\text{ Change in Income}=-18%$. Then $E_{I - Sniks}=\frac{-29%}{-18%}\approx1.61$. Since $E_{I - Sniks}>0$, sniks are a normal good.

Step5: Identify luxury good

A luxury good has an income - elasticity of demand greater than 1. Among the three goods, sniks has an income - elasticity of demand ($E_{I - Sniks}\approx1.61$) greater than 1, so sniks is the luxury good.

Answer:

Good Income Elasticity of Demand Normal or Inferior Good
Flops $\frac{1}{3}\approx0.33$ Normal
Blats $\approx - 0.94$ Inferior
Sniks $\approx1.61$ Normal
The luxury good is Sniks.