If, When Income Increases by 2 Per Cent and the Price

question 96

Multiple Choice

If, when income increases by 2 per cent and the price does not change, the quantity of airplane travel demanded increases by 6 per cent, the income elasticity of demand for airplane travel is

• A) 3.00.
• B) 0.
• C) negative.
• D) 0.33.

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Definitions:

Long Run

Refers to a period during which all factors of production and costs are variable, allowing full adjustment to production decisions.

Fixed Costs

Expenses that remain constant regardless of the amount of goods or services produced, like lease payments or wages.

Long-Run Average Cost Curve

A curve that shows the lowest average cost at which a firm can produce any given level of output in the long run, when all inputs are variable.

Short-Run

A period during which at least one input (for example, plant size, machinery) in the production process is fixed and cannot be changed.