Question

When a 5% increase in income causes a 3% drop in quantity demanded of a good Group of answer choices the cross-price elasticity is .6 and the good is an inferior good. the income elasticity is 1.67 and the good is a normal good. the income elasticity is .6 and the good is an inferior good.

Answer 1

the income elasticity is -0.6 and the good is an inferior good.

Step-by-step explanation:

Data provided as per the question below:-

Percentage change in quantity demanded = -3%

Percentage change in income = 5%

The computation of Income elasticity of demand is shown below:-

Income elasticity of demand = Percentage change in quantity demanded ÷ Percentage change in income

= - 3% ÷ 5%

= - 0.6

The good is a lesser good since the quantity demanded does not increase but it falls by that profits.