ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Inferior
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Normal
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Luxury
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None of these
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Detailed explanation-1: -b. If price is 12, quantity demanded increases from 24 to 30 when income increases from $10, 000 to $12, 000. Using the mid-point method, the income elasticity is ((30-24)/((30 + 24)/2))/((12, 000-10, 000)/((12, 000 + 10, 000)/2)) = 1.22.
Detailed explanation-2: -Answer and Explanation: The correct answer is c. The income elasticity is 0.4 and the good is a normal good. The good is a normal good because demand rises as income rises.
Detailed explanation-3: -The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.
Detailed explanation-4: -If income elasticity of demand is 0.6, then it means that for every 1% increase in income, the quantity demanded will increase by 0.6%. While own-price elasticity is usually negative, income elasticity of demand can be positive, negative, or zero.