Question

Suppose income increases by 25 percent​ and, as a​ result, the quantity of a particular brand of automobile demanded​ (holding the price for this particular automobile​ constant) increases by 49 percentThe income elasticity of demand for this brand of car is ____​(Enter your response rounded to two decimal places and include a minus sign if​ appropriate.)This particular brand of automobile is​ a(n) _____ goodSuppose market research shows that a particular brand of truck is a normal good and a luxury. If​ so, then the income elasticity of demand for this truck isa.Less than 1 but greater than 0b. Negativec. Greater than 1d. Positivee. Zero

Answer 1

The correct answer is: 1.96; Luxury good; option c.

Step-by-step explanation:

The income of consumers increases by 25%.

The quantity demanded of a particular brand of the automobile as a result increases by 49%.

The income elasticity of demand is

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

=
`(49)/(25)`

= 1.96

A normal good is a good whose demand increases with the increase in the consumer's income. If the income elasticity is greater than 1, it implies that the good is a luxury good.

For a truck to be a normal good, its income elasticity should be positive and for a normal good, it should be greater than 1.