ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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INFERIOR GOOD
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NORMAL GOOD
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Either A or B
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None of the above
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Detailed explanation-1: -If the demand for blueberries increases by 11 percent when income increases by 33 percent, then blueberries have an income elasticity of demand of 0.33, or (11/33). Blueberries qualify as a normal good. Economists use the income elasticity of demand to determine whether a good is a necessity or a luxury item.
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: -When a 5% increase in income causes a 3% drop in quantity demanded of a good: a. the income elasticity is 0.6 and the good is an inferior good.
Detailed explanation-4: -A product whose demand falls when income rises, and vice versa, is called an inferior good. In other words, when income increases, the demand curve for an inferior good shifts to the left.
Detailed explanation-5: -The formula for calculating income elasticity of demand is the percent change in quantity demanded divided by the percent change in income.