Consider a consumer with the utility function . Which one of the following is true?
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DSE 2006 Question 11: Demand theory and elasticity
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Consider a consumer with the utility function u(x,y)=x^(1/2)+y. Which one of the following is true? (A) Income elasticity of both goods x and y is 1. (B) Income elasticity of good x is 0. (C) Income elasticity of good y is 0. (D) Income elasticity of good x is 1 and of good y is 0.
Demand theory and elasticity has come up 161 times in 7 exams since 2004.
What this question tests
This question is on Income elasticity, normal and inferior goods and Engel curves, part of Demand theory and elasticity in Microeconomics.
How demand responds to income, how goods are classified by that response, and Engel's law.
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Question from the DSE 2006 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.