Question

As the economy emerged from the most recent recession, household income rose by 6 percent. Over the same period, total expenditures on beef increased by 3 percent. Assuming that all other economic variables were held constant, A. the income elasticity of demand must be equal to 2. B. beef must be a normal good. C. beef must be an inferior good. D. Both A and B are correct.

Answer 1

The correct answer is option B.

Step-by-step explanation:

An economy is recovering from the recession.

It's household income rose by 6 percent.

During the same period, the total expenditure on beef increased by 3 percent.

This indicates that beef is a normal good.

A normal good is a type of good which has positive income elasticity. In other words, its demand increases with an increase in income and vice versa.

The income elasticity of demand for beef

=
`(\Delta Q)/(\Delta Y)`

=
`(3)/(6)`

= 0.5

The income elasticity of demand for beef is 0.5.