Course II May 2001 Q 9

[ookawasan]

Which of the following statements regarding consumer goods in the marketplace is true?

a. The quantity demanded of an inferior good decreases as its price decreases.
b. the intersection of a consumer's Engel curve and demand curve represents how much the consumer will buy given a specific income level.
c . When the price of a normal good decreases, the increase in quantity due to the income effect cannot be greater than the substitution effect.
d. the compensated demand curve for a normal good will be steeper than the uncompensated demand curve.
e. the income elasticity of demand is equal to the slope of the Engel curve.

The answer is D
But why isn't E also true? On the bottom of page 107 in Price Theory, it specifically defines the income elasticity of demand as the slope of the Engel curve!

Help!
Thanks

[ASA_Woman]

ookawasan, please refer to the thread that I started awhile ago called Course 2 exam question. I just bumped it up to the top of this section.

[ookawasan]

THanks Course woman.

but the question you asked is a little different from mine! In your question, income elasticity of demad was not mentioned...

Go to p 107 and check the definition. I dont' see why E can't be true!!

[ASA_Woman]

oops!

ok ... the income elasticity of demand is unitless ... change in demand for 1% change in income. Slope of engel curve is (change in demand)/(change in income) and depends on the units used.