The Owner of a Kayak Tour Business Has Been Looking

question 364

Multiple Choice

The owner of a kayak tour business has been looking over the latest data from the Census, which reported that income in the area where she is based has increased by 20%. If the owner also observed that her sales increased by 10% during the same period, what is the income elasticity of demand and how would you interpret it?

• A) E_Y = 2; for a 1% increase in income, the owner can expect to see a 2% increase in her sales.
• B) E_Y = 0.5; for a 1% increase in income, the owner can expect to see a 0.5% increase in her sales.
• C) E_Y = 2; for a 1% increase in income, the owner can expect to see a 0.5% increase in her sales.
• D) E_Y = 0.5; for a 1% increase in income, the owner can expect to see a 2% increase in her sales.

Understand the importance and purpose of economic models.

Identify the participants in the economy and their roles.

Grasp the concept of the circular-flow diagram and its components.

Recognize the significance of the production possibilities frontier (PPF) and its implications.