Question

Last year, Sefton purchased 60 pounds of potatoes to feed his family of five when his household income was $30,000. This year, his household income fell to $20,000 and Sefton purchased 80 pounds of potatoes. All else constant, Sefton's income elasticity of demand for potatoes is A) positive, so Sefton considers potatoes to be a normal good and a necessity. B) positive, so Sefton considers potatoes to be an inferior good. C) negative, so Sefton considers potatoes to be a normal good. D) negative, so Sefton considers potatoes to be an inferior good.

Answer 1

D) negative, so Sefton considers potatoes to be an inferior good.

Step-by-step explanation:

the formula to calculate income elasticity of demand is:

income elasticity = % change in quantity demanded / % change in income

income elasticity = [(80 - 60) / 60] / [(20,000 - 30,000) / 30,000] = (20 / 60) / (-10,000 / 30,000) = 0.333 / -0.333 = -1

Since the income elasticity is negative, potatoes are an inferior good for Sefton. The quantity purchased of inferior goods increases as income decreases. On the other hand, normal goods have a positive income elasticity, since the quantity purchased increases as income increases.

is the percent change in quantity demanded divided by the percent change in income.

Answer 2

The answer is D.

Step-by-step explanation:

Income elasticity of demand potatoes is negative. Potato is considered an inferior goods because demand for an inferior good decreases with an increase in income and increases with a decrease in income.

Last year when the income was $30,000, 60 pounds was consumed. It increased to 80 pounds when the income fell to $20,000.

A normal good will increase with an increase in income and decrease with a decrease in income.