Assume That the Income Elasticity of a Basic Microwave Oven

question 45

Multiple Choice

Assume that the income elasticity of a basic microwave oven is 4.8 and the price elasticity of the same product is 1.2.In a small town,where a recession hit hard and the average income fell by about 5%,would a 5% price cut in microwave ovens help producers get rid of a new shipment of inventories?

• A) Yes,microwave ovens are price elastic.
• B) No,microwave ovens are price inelastic.
• C) Yes,microwave ovens are income elastic.
• D) No,microwave ovens are income inelastic.
• E) Probably not,since the effect of the decrease in income is more significant than the price decrease.

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