Question: elasticities are useful measures because we can roughly assess their...
Elasticities are useful measures, because we can roughly assess
their size without reference to the units in which we measure goods
consumption or price levels, simply
by comparing their values to benchmarks of 1, 0, or −1.
a. If the income elasticity of rice consumption equals 1, what
happens to the ratio of rice consumption expenditure to total
income when income rises (holding prices constant)? If the
elasticity is greater (less) than 1?
b. If the own price elasticity of rice consumption (R)
is less than (greater than) −1, rice demand is said to be “price
elastic”(“price inelastic”). When rice demand is price
(inelastic), does total expenditure on rice (pRR) rise or fall when the price of rice (pR) rises?