ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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in the inferior range
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0.5
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1
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2
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Detailed explanation-1: -The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.
Detailed explanation-2: -So as consumers’ income rises more is demanded at each price. 1. Normal necessities have an income elasticity of demand of between 0 and +1 for example, if income increases by 10% and the demand for fresh fruit increases by 4% then the income elasticity is +0.4. Demand is rising less than proportionately to income.
Detailed explanation-3: -There are five main categories of income elasticity of demand based on the percentage increase or decrease in quantity compared to the increase or decrease in incomes. Starting from the largest positive change, they are called: High, Unitary, Low, Zero, and Negative.
Detailed explanation-4: -If the income elasticity of demand is greater than 1, the good or service is considered a luxury and income elastic. A good or service that has an income elasticity of demand between zero and 1 is considered a normal good and income inelastic.