4. Suppose the own price elasticity of demand for good X is -3, its income elasticity is 1, its advertising elasticity is 2, and the cross-price elasticity of demand between it and good Y is -4. Determine how much the consumption of this good will change if: (LOI) a. The price of good X decreases by 5 percent. b. The price of good Y increases by 8 percent. c. Advertising decreases by 4 percent. d. Income increases by 4 percent.

7. Using the income elasticity of demand to characterize goods A survey taken by residents from the imaginary town of Draw City tells economists that the following changes result from a 10% rise in income: • A 2% increase in the quantity of tokens demanded • A 17% decrease in the quantity of kings demanded • A 34% increase in the quantity of queens demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on the income elasticities, classify each good as either a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign gives important information.) Income Elasticity of Demand Normal Good or Inferior Good Good Tokens Kings Queens Which of the following three goods is most likely to be classified as a luxury good ? O Kings Tokens Queens

7. Using the income elasticity of demand to characterize goods Data collected from the economy of Pokerville reveals that a 16% increase in income leads to the following changes: • A 6% increase in the quantity of flops demanded • A 14% decrease in the quantity of spades demanded • A 29% increase in the quantity of houses demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.) Good Income Elasticity of Demand Normal or Inferior Good Flops Spades Houses

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