Question

Three years after graduating from​ college, you get a promotion and a 16 percent raise. Your consumption habits change accordingly. ​(For all the calculations below round your answer to two decimal​ places, and enter a​ "-" if your answer is​ negative.)

Suppose your consumption of frozen hot dogs has reduced by 88 percent. Your income elasticity of demand is _______. ​Thus, we can say that a frozen hot dog is ​a(n) _______ (normal good/ inferior good/ luxury good).

Answer 1

The elasticity of demand is negative and the frozen hotdogs are an inferior good.

Step-by-step explanation:

The income elasticity of demand measures how much of a demand a consumer will have or has for certain products or services once their income increases. The formula for calculating income of elasticity demand is the percent change in quantity divided by the percent change in income. There are 5 types of income elasticity of demand but the 3 main are:

1. High elasticity = an increase in income results in more quantities being demanded. This one is also called luxury goods.

2. Zero elasticity = the quantity demanded remains relatively unchanged even with the increase in income. This one is called normal goods.

3. Negative elasticity = an increase in income results in a decrease in the quantity demanded. These ones are known as inferior goods.

Answer 2

Answer: -5.5%

Inferior good.

Step-by-step explanation:

• Income elasticity of demand = % change in quantity demanded / % change in income

= -88% / 16℅

= - 5.5%

• From the calculation above, frozen hot dog is an inferior good. An inferior good is a good which an increase in income will lead to a reduction in quantity demanded. An inferior good as a negative income elasticity of demand and is of low quality and usually purchased as a result of its affordability by low income earners.