Question

Areathe quantity demanded of good z rises from 230 units to 250 units as income increases from $50,000 to $55,000. the income elasticity of demand for good z is _____________ and good z is a(n) ___________ good.

a. 0.875, inferior
b. –0.875, inferior
c. 1.143, normal
d. –1.143, inferior e. 0.875, normal

Answer 1

The income elasticity of demand for good Z is 0.875, indicating that as income increases, so does the demand for good Z. This makes it a normal good.

Step-by-step explanation:

The income elasticity of demand for good Z can be calculated using the following formula:

Income Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Income)

First, we find the percentage change in quantity demanded: ((250 - 230) / 230) * 100 = 8.7%

Next, we calculate the percentage change in income: (($55,000 - $50,000) / $50,000) * 100 = 10%

Thus, the income elasticity of demand for good Z is: 8.7% / 10% = 0.87

Given that this value is positive, it indicates that the good is a normal good, as demand for it increases with an increase in income.