Suppose the Income Elasticity of Demand for Toys Is -2

question 143

Multiple Choice

Suppose the income elasticity of demand for toys is -2.5. This means that

• A)a 3 percent increase in income will decrease the purchase of toys by 7.5 percent.
• B)a 3 percent increase in income will decrease the purchase of toys by 1.2 percent.
• C)a 3 percent increase in income will increase the purchase of toys by 7.5 percent.
• D)toys are a normal good.

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Definitions:

Anchoring

Anchoring is a psychological phenomenon wherein an individual relies too heavily on an initial piece of information, or 'anchor,' to make subsequent decisions.

Heuristics

Simple, efficient rules, either hard-coded by evolutionary processes or learned, which help in making decisions, forming judgments, or solving problems.

Error-Free Decisions

Decisions made without mistakes, achieved through careful analysis, planning, and consideration of all relevant information.

Recognition Heuristics

A cognitive shortcut where a decision is made based on the recognition or familiarity of an option rather than on a detailed comparison or analysis.