Question

If average household income increases by 25%, from $40,000 to $50,000 per year, the quantity of rooms demanded at the Triple Sevens from rooms per night to rooms per night. Therefore, the income elasticity of demand is , meaning that hotel rooms at the Triple Sevens are .

Answer 1

Therefore, the income elasticity of demand is positive, meaning that hotel rooms at the Triple Sevens are a normal good.

Step-by-step explanation:

The income-elasticity of demand is the term that refers to the quantity demanded of a product or services, divided by the percentage of customer income. Generally, the income elasticities of demand are positive, which means that a product will have a higher demand when consumers have an increase in income. An example of this can be seen in the question above, where the increase in consumer income increases demand for rooms at Triple Sevens, as higher income allows customers to travel more and need rooms at institutions like Triple Sevens.

It also shows us that Triple Sevens rooms are a normal good. Normal goods are those that have increased demand in line with the increase in the income of their consumers.