Suppose That the Income Elasticity of Demand for Peanut Butter

question 157

Multiple Choice

Suppose that the income elasticity of demand for peanut butter is 0.75. Which of the following is true?

• A) Peanut butter is a normal good, because income elasticity is positive.
• B) Peanut butter is an inferior good, because income elasticity is positive.
• C) Peanut butter is a normal good, because income elasticity is less than 1.
• D) Peanut butter is an inferior good, because income elasticity is less than 1.

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Definitions:

Adjusted Gross Income

An individual's total gross income minus specific deductions, used in the United States tax system to determine how much income is taxable.

Wage Earners

Individuals who receive compensation for their labor or services in the form of wages or salary.

Gross Domestic Product

The total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period.

Purchasing Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach, to assess the relative value of currencies and the cost of living.