Answer:
0.87; Normal good
Step-by-step explanation:
Given that,
Initial quantity demanded = 230
New quantity demanded = 250
Initial income = $50,000
New income = $55,000
Percentage change in the quantity demanded:
= (Change in the quantity demanded ÷ Initial quantity demanded) × 100
= [((250 - 230) ÷ 230) × 100
= (20 ÷ 230) × 100
= 8.7%
Percentage change in the income:
= (Change in the income ÷ Initial income) × 100
= [(($55,000 - $50,000) ÷ $50,000) × 100
= ($5,000 ÷ $50,000) × 100
= 10%
Therefore, the income elasticity of demand is as follows:
= Percentage change in the quantity demanded ÷ Percentage change in the income
= 8.7 ÷ 10
= 0.87
Therefore, the income elasticity of demand for Good Z is comes out to be positive which indicates that the good Z is a normal good. This means that there is a positive relationship between the income of the consumer and the quantity demanded for the good.