Suppose That the Value of the Income Elasticity of Demand

question 11

Multiple Choice

Suppose that the value of the income elasticity of demand for a product is 2 and average incomes increase by 16%.What will happen to the quantity demanded?

• A)It will increase by 8%.
• B)It will increase by 32%.
• C)It will decrease by 8%.
• D)It will decrease by 32%.
• E)It cannot be determined without further information.

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Definitions:

Profits

The financial benefit that is realized when revenue generated from a business activity exceeds the expenses, costs, and taxes needed to sustain the activity.

Profit-maximizing

A strategy where a firm sets its production level and pricing to achieve the highest possible profit.

Resource Combination

The process of organizing and combining different resources like capital, labor, and raw materials, to produce goods or services.

MRPS

Marginal Revenue Product of Labor, a measure of the additional revenue generated by hiring an additional worker, holding other factors constant.