ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Income elasticity is +2 and income increases by 20%. Sales were 5000 units. What will they be now? Explanation: A percentage increase in income will lead to an increase in quantity demanded that is twice as great; this means sales will increase by 40%, to 7000 units.

Detailed explanation-2: -If the income elasticity is 2 this means a 1% change in income leads to a 2% change in quantity demanded. If the income elasticity of demand is 0.5 this means a 1% change in income leads to a 0.5% change in quantity demanded.

Detailed explanation-3: -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-4: -Answers. By the formula of income elasticity of demand, . so, E = 40/20 = 2, option b is correct.

Detailed explanation-5: -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.