(a) Define (i) Income Elasticity of Demand.

(ii) Cross Elasticity of Demand. (15 marks)

(b) (i) "Income elasticity of demand is usually positive but sometimes negative".

Explain, giving examples, the meaning of this statement.

(ii) A consumer spends 40% of income on a certain good. After the consumer's income

doubles (everything else remaining unchanged), only 30% of income is spent on the

good. State whether this good is a normal or inferior good and explain your answer.

(20 marks)

(c) Which of the figures stated below is likely to represent:

(i) Income elasticity of demand for potatoes;

(ii) Income elasticity of demand for designer clothes;

(iii) Price elasticity of demand for airline seats.

-2.8, -0.1, + 2.5

Explain each of your choices. (30 marks)

(d) Income elasticity of demand for a good is +1.8 and sales in Year 1 are 20,000 units. If

consumers' incomes are expected to rise by 5% in Year 2, calculate the expected level of sales.

Show your workings.

(10 marks)

[75 marks]

4. (a) Define: (i) Capital

(ii) Marginal Efficiency of Capital.

(iii) Investment

(20 marks)

(b) (i) State and explain TWO reasons why investment is considered to be important for the

Irish economy.

(ii) State and explain FOUR factors that influence the level of investment in the Irish

economy at present.

(30 marks )

(c) J. M. Keynes identified three reasons (motives) for holding money.

Explain the THREE reasons and outline ONE main influence on each reason.