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True or False 5. The income elasticity of move tickets is 1.4 This indicates that movie...

True or False

5. The income elasticity of move tickets is 1.4 This indicates that movie tickets are normal goods

6. The income elasticity of demand for an expensive luxury with many substitutes is likely to be larger than one in absolute value.

7. If you know a firm is on the upper left portion of its (straight) inverse demand curve, its price elasticity of demand must be greater than one in absolute value.

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5. TRUE, income elasticity is % change in quantity demand due to % change in income. So 1.4 means when income increases quantity demand increases. This is the property of normal goods.

6. TRUE, because when elasticity is > 1, it means change in quantity demanded is greater than change in income. When many substitutes are available, people will shift their preferences when their income changes.

7. TRUE, demand is elastic in the upper portion ( e > 1 ) , unit elastic in the middle ( e=1) and inelastic (e<1) in the lower region of the demand curve that is downward sloping.

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