Suppose that when household income in a city rises by 2%, and the price of good X remains unchanged, the quantity demanded of good X decreases by 15%. Then, in this city, the income elasticity of demand for good X is (7.50, - 7.50, - 0.13, 0.13), and you know that good X is (an inferior good, a normal good).

Question

Mathematics

Maia Arroyo

8 May, 10:36

Suppose that when household income in a city rises by 2%, and the price of good X remains unchanged, the quantity demanded of good X decreases by 15%. Then, in this city, the income elasticity of demand for good X is (7.50, - 7.50, - 0.13, 0.13), and you know that good X is (an inferior good, a normal good).

+3

Answers (2)

Know the Answer?

Marlene Kerr · Answer 1

Answer: - 7.50; Inferior good

Step-by-step explanation:

Income elasticity of demand shows the relationship that exists between the quantity demanded of a good and its price. It is calculated as the % change in quantity demanded divided by the % change in price.

From the question, when income increases by 2%, the quantity demanded falls by 15%, then the income elasticity of demand is:

-15% : 2% = - 7.50

Good X is an inferior good. Inferior good have a negative income elasticity of demand. As the income of q consumer increases, the quantity demanded reduces.

Quinton Marshall · Answer 2

Step-by-step explanation:

income elasticity of demand for the good X = % change in quantity demanded / % change in income of consumer = - 15 / 2 = - 7.50 negative since it is a decrease in demand.

and the good X is an inferior good since increase income brings about a decrease in quantity demanded of the goods compared to normal good where a decrease in income brings about decrease in quantity demanded and an increase in income brings about increase in quantity demanded.