Question

​​A good is considered normal when its income elasticity of demand is  ___ and inferior when the its income elasticity of demand is ___.

	​Greater than zero, less than zero.
	​Less than zero, greater than zero.
	​Greater than one, less than one.
	​Less than one, greater than one.

If an increase in prices decreases total revenue in the short run, what will it do to total revenue in the long run?

	​It will decrease total revenue in the long run.
	​It will increase total revenue in the long run.
	​It will leave total revenue unchanged in the long run.
	​Any of the above results are possible in the long run.

When a good is taxed, the tax burden

Question 6 options:

	​falls disproportionately on the side of the market that is more elastic.
	​falls disproportionately on the side of the market that is more inelastic.
	​falls disproportionately  on the side of the market that is closer to unit elastic.
	​is not impacted by the relative elasticities of supply and demand.

​If the supply of good A is perfectly elastic, a decrease in demand will:

	​reduce the equilibrium quantity traded, but leave the price unchanged.
	​reduce the equilibrium quantity traded, and reduce the price.
	​reduce the equilibrium price, but leave the quantity traded unchanged.
	​reduce the equilibrium price traded, but increase the quantity traded.

If demand is unit elastic between 2 points (using the mid-point method):

	Total revenue and prices rise and fall together.
	Total revenue rises as price falls.
	Total revenue falls as price rises.
	Total revenue remains constant as price rises or falls.

​If one is interested in knowing whether or not a pair of products are substitutes, one would be interested in the value of the:

	​elasticity of supply.
	​price elasticity of demand.
	​income elasticity of demand.
	​cross-price elasticity of demand.

Answer 1

Question : ​​A good is considered normal when its income elasticity of demand is  ___ and inferior when the its income elasticity of demand is ___.

Answer : Greater than zero, less than zero

If income elasticity of demand of a good is positive, then the good is considered to be a normal good. Thus its income elasticity will be greater than one. In the same way, if the income elasticity of demand of a good is negative, then that good can be considered as an inferior good. Thus its income elasticity of demand will be less than one.