question archive When a 10% increase in income causes a 4% increase in quantity demanded of a good: a
When a 10% increase in income causes a 4% increase in quantity demanded of a good: a
Subject:EconomicsPrice:2.88 Bought3
When a 10% increase in income causes a 4% increase in quantity demanded of a good:
a. The price elasticity of demand is 0.4 and the good is an inferior good,
b. The income elasticity is 2.5 and the good is a normal good,
c. The income elasticity is 0.4 and the good is a normal good.
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The correct answer is c. The income elasticity is 0.4 and the good is a normal good.
The income elasticity of demand is computed as follows:
Income elasticity = % Change in Quantity demanded / % Change in Income
= 4% / 10%
=0.4
- The good is a normal good because demand rises as income rises.
