## <!-- -->To run this page correctly, you need a more modern browser that understands JavaScript.<P><!--Beginning of JavaScript function checkanswer() { //var f=document.question; if (f.relationship.selectedIndex==2){f.A.src=imaged[2].src} else {f.A.src=imaged[3].src;} if (f.elasticity.selectedIndex==1){f.B.src=imaged[2].src} else {f.B.src=imaged[3].src;} if (f.inferior.selectedIndex==3){f.C.src=imaged[2].src} else {f.C.src=imaged[3].src;} if (f.vertical.value=="0") {f.D.src=imaged[2].src} else {f.D.src=imaged[3].src;} if ((f.zero.value=="0") || (f.zero.value=="zero")) {f.E.src=imaged[2].src} else {f.E.src=imaged[3].src;} if (f.shift.selectedIndex==2){f.F.src=imaged[2].src} else {f.F.src=imaged[3].src;} if (f.income.selectedIndex==4){f.G.src=imaged[2].src} else {f.G.src=imaged[3].src;} } //-End of JavaScript- -->The Engel Curve

2. The demand curve is the relationship between the amount of a product that people are willing to buy and the price of the product. An Engel curve is the relationship between the amount of a product that people are willing to buy and their income. An Engel curve is shown below.

 a) The Engel curve in the graph above illustrates what sort of relationship? ?? Inverse Direct b) Based on this graph, the income elasticity of shirts is ?? positive negative c) If this curve were sloped the other way, so that the relationship were inverse, shirts would be an ?? complementary substitute inferior negative externality necessary good. d) If the curve were vertical, how many more shirts would a person buy if he got an extra \$5000 in income? e) A vertical Engel curve will have an elasticity of. f) If the price of shirts rose, what would happen to the Engel curve? ?? Shift right Shift left Not shift g) What is the only change that can increase the number of shirts people will buy, but will not move the Engel curve at all? A change in ?? Price of shirts Tastes Prices of other goods Income Costs of production

## Various Elasticities: A Review

3. The text discusses four types of elasticity: price elasticity of demand, price elasticity of supply, income elasticity of demand, and cross-price elasticity. (There are many others possible--wherever there is a stimulus-response pattern that can be measured, there is a possible elasticity.) In the following hypothetical cases, identify the stimulus and the response, and then decide what type of elasticity is being described.

a) The price of gasoline rises 50% and the sale of cars drops by 10%.
b) The income of Chinese workers rises by 50% and their purchases of new cars rise by 40%.
c) The price of gasoline rises by 50% and people buy 20% less.
d) The price of gasoline rises by 50% and gasoline production rises by 10%
e) Bread and butter are complements because a 10% increase in the price of butter reduces the sales of bread by 2%
f) Shoe repair is an inferior good because as income goes up by 20%, the numbers of shoes repaired goes down by 1%.
g) A 5% rise in the price of cotton causes farmers to plant 10% more acres in cotton.
h) A 10% rise in the price of gasoline reduces the amount people buy only 1% in the short run but by 8% in the long run.