Income elasticity of demand, answers
Exercise
In each of the
following cases, identify in column 2 whether the product is:
-
A normal good with an inelastic response
-
A normal good with an elastic response
-
An inferior good with an inelastic response
-
An inferior good with an elastic response
-
A close substitute
-
Not a close substitute
-
A close complement
-
Not a close compliment
-
A perfect substitute
-
A perfect complement
-
Goods are not related
| What is the product? | Give one example | ||
| 1 |
XED = 0 |
Goods are not related | Butter and a chair |
| 2 |
YED = + 10 |
Normal good with elastic response | Laptop computer |
| 3 |
YED = - 0.2 |
Inferior good with inelastic response | Bread |
| 4 |
XED = + 0.2 |
Not close substitutes | BMW Mini and Smart Car |
| 5 |
XED = + ∞ |
Perfect substitutes | Evian and Buxton water |
| 6 |
YED = + 0.3 |
Normal good with inelastic response | Tomatoes |
| 7 |
XED = + 12 |
Close substitutes | The Guardian and The Independent newspapers |
| 8 |
YED = - 15 |
Inferior good with high elasticity | Bus travel |