Question

For the following statement, state the relevant elasticity and state what its value should be (negative, positive, greater than one, zero, and so on). The demand for European vacations increases during times of rising incomes. a. Cross-price elasticity of demand is negative. b. income elasticity of supply is negative. c. income elasticity of demand is negative. d. income elasticity of demand is positive.

Answer 1

d. income elasticity of demand is positive.

Step-by-step explanation:

When the demand for European vacations increases during times of rising incomes then income elasticity of demand is positive because a rise in income is leading to a rise in demand.

Income elasticity of demand measures the responsiveness of demand to changes in consumer income.

The value of the income elasticity of demand in this case will be positive and depending on the rate of change: the value will be one, if the rise in income leads to a proportionate rise in demand for European vacations.