Question

You are told that the income elasticity for DVDs is +1.5. This means that:

a) DVDs are an inferior good
b) DVDs are a normal good
c) DVDs are a luxury good
d) DVDs are a substitute for another product

Answer 1

If the income elasticity for DVDs is +1.5, it means that DVDs are a normal good.

Step-by-step explanation:

The income elasticity of demand measures the responsiveness of quantity demanded to changes in income. If the income elasticity for DVDs is +1.5, it means that a 1% increase in income will result in a 1.5% increase in the quantity demanded of DVDs. Since the income elasticity is positive, DVDs are considered a normal good.