Economists estimated that the price elasticity of beer is - 0.30 and the income elasticity of beer is 0.09. This means that:

A. an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a luxury.

B. an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good.

C. an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

D. a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.

Question

Miranda Tanner

Social Studies

2 December, 15:58

Economists estimated that the price elasticity of beer is - 0.30 and the income elasticity of beer is 0.09. This means that:

A. an increase in the price of beer will lead to a decrease in the quantity demanded of beer and beer is a luxury.

B. an increase in the price of beer will increase the quantity demanded of beer and beer is a normal good.

C. an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

D. a decrease in the price of beer will lead to an increase in revenue for beer sellers and beer is an inferior good.

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Answers (1)

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Darren · Answer 1

C: an increase in the price of beer will lead to an increase in revenue for beer sellers and beer is a normal good.

Explanation:

Because the price elasticity of beer is negative - 0.3, this implies that an increase in the price of beer by $1 would lead to a decrease in the demand of beer by 0.3 units and such increase will lead to an increase in revenue of beer seller. However, the income elasticity of beer is 0.09, which implies that the consumption of beer increases with an increase in income, which makes beer a normal good.