question archive If your income goes up by 2% and, in response, the quantity demanded of good xx rises by 3%, the income elasticity of demand would be _____
If your income goes up by 2% and, in response, the quantity demanded of good xx rises by 3%, the income elasticity of demand would be _____
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If your income goes up by 2% and, in response, the quantity demanded of good xx rises by 3%, the income elasticity of demand would be _____.
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- If income increases by 2% while the amount demanded of a good x rises by 3 percent, 1.5 is the income elasticity.
Income elasticity is computed by dividing the difference in the amount demanded with the difference in the income level of an individual, both expressed as a percentage.
Therefore given the change in demand as 3%=0.03 and the change in income as 2% 0.02, the elasticity 0.03/0.02=1.5
Elasticity shows whether a product is normal, inferior, or luxury. The demand for inferior goods reduces as the income of individual increases, for example, second-hand clothes. In contrast, the demand for normal and luxury products increases as the income of a consumer increases. The elasticity of luxury goods such as jewelry is a number more than one like the above example.
