ECONOMICS
ELASTICITY OF DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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0.67; normal good
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.67; inferior good
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1.5; normal good
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1.5; luxury good
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Detailed explanation-1: -Income elasticity of demand is an economic measure of how responsive the quantity demanded for a good or service is to a change in income. The formula for calculating income elasticity of demand is the percentage change in quantity demanded divided by the percentage change in income.
Detailed explanation-2: -Answer and Explanation: a) As the proportion of income spent is always the same, a percentage change in income will cause the same percentage change in the amount of clothing bought. Therefore, the income elasticity of demand is always 1.
Detailed explanation-3: -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-4: -A normal good has an income elasticity of demand that is positive, but less than one. 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).