. Assume that, holding everything else constant, the quantity demanded of McDonald’s milkshakes increases by 5 percent in response to an increase of 10 percent in consumer income. What would be value of the income elasticity of demand for McDonald’s milkshakes? Would McDonald’s milkshakes be considered an inferior good? Briefly explain why or why not
2. Assume that a consumer’s income increased from $67,500 in 2020 to $135,000 in 2021. This consumer spent 10 percent of her income ($6,750) on gasoline in 2020. If the income elasticity of demand for gasoline was equal to +0.8, would she spend more or less than $13,500 on gasoline in 2021? Briefly explain your answer
3. income elasticity for wheat is positive but less than +1.0. Use this information to answer the following question. Is wheat a normal good or an inferior good?
4. If an increase in the price of new automobiles causes an increase in the quantity demanded of used automobiles, would the cross-price elasticity of demand between new and used automobiles have a positive or a negative value? Briefly explain your answer
5. Assume that eggs and bacon are complementary goods. Would the cross-price elasticity of demand between eggs and bacon have a positive value or a negative value? Briefly explain your answer.
6. Assume that eggs and breakfast cereal are substitute goods. Would the cross-price elasticity of demand between eggs and breakfast cereal have a positive value or a negative value? Briefly explain your answer. The cross-price elasticity of demand measures the percentage change in the quantity demanded of one good in response to the percentage change in the price of another good. Would the cross-price elasticity of demand between Coca-Cola and Pepsi-Cola have a negative value or a positive value? Briefly explain your answer.
7. A research study found that the price elasticity of demand for Coca-Cola is -1.22, while the price elasticity of demand for all carbonated soft drinks is equal -0.70. Briefly explain why these two elasticities are different.