You are the manager of a meat processing plant. Your firm’s research department has estimated the...
You are the manager of a meat processing plant. Your firm’s research department has estimated the income elasticity of demand for ground beef produced from nonfed cattle to be -1.94. (“Nonfed” beef comes from cattle that have not been fed a special diet.) You have just read in The Wall Street Journal that due to the improving economy, consumer incomes are expected to increase by 10% over the next three years. Which of the following is false? A. As a result of this forecast, you will increase your purchases of nonfed cattle. B. Consumers consider beef from nonfed cattle to be an inferior good. C. You project that the quantity demanded of nonfed cattle will decline by 19.4%.
Homework Answers
Option A is false
Option B and C are correct. Income elasticity of demand is negative which means nonfed cattle is an inferior good. Also, income elasticity of demand = percentage change in quantity demanded / percentage change in the income. In this case the percentage change in the quantity demanded = -1.94*+10% or -19.4%.
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