Suppose the Income Elasticity for Transportation Is 1

question 8

Multiple Choice

Suppose the income elasticity for transportation is 1.8.Which of the following is an incorrect statement?

• A)Transportation is a normal good.
• B)Expenditures on transportation grow more rapidly than income grows.
• C)Expenditures on transportation will fall less rapidly than income falls.
• D)Whenever the income increases by 1%, the expenditure on transportation increases by 1.8%.

---

Definitions:

Loss Aversion

A cognitive bias reflecting the tendency for people to prefer avoiding losses to acquiring equivalent gains, suggesting that losses are perceived as more severe than gains.

Status Quo Bias

A cognitive bias that represents a preference for the current state of affairs, leading individuals to resist change.

Marginal Cost

The expense associated with creating an extra unit of a product or service.

Marginal Benefit

The further satisfaction or value an individual gains from consuming an extra unit of a certain product or service.