Question

If the income elasticity of a good is 0.8, what do we know about the good?a. It is a normal goodb. It is an inelastic goodc. It is an inferior goodd. It is an elastic good

Answer 1

The correct answer is letter "A": It is a normal good.

Step-by-step explanation:

Income Elasticity of Demand is a measure of how consumer demand changes when income changes. If the product in reference is a normal good, when the income increases, the demand for the good will increase as well but, if the income decreases, so will the demand for the product. A normal good has a positive correlation (0.8 in the example) between income and demand.

Answer 2

Answer: Option (a) is correct.

Step-by-step explanation:

Income elasticity of a normal good is positive. Income elasticity of demand for normal good is generally between zero and one. Positive income elasticity of demand for normal good means that if there is an increase in the income level of an individual then as a result the demand for normal goods also increases and if there is a fall in the income level then as a result the demand for normal goods also decreases.