Question

The quantity demanded of good X falls by 20% and, in response, your income goes down by 10% and, the income elasticity of demand would be:

Answer 1

Answer: Income Elasticity of demand = 2

Step-by-step explanation:

Income Elasticity of demand shows the responsiveness of the quantity demand for a good or service is to any change consumers income. it is calculated as

Income Elasticity of demand = Percentage change in Quantity / Percentage change in price

=20%/ 10% = 2

Income Elasticity of demand = 2

therefore we can say the good is a normal good sinve it has a positive income elasticity of demand which means that there will be an increase in demand as consumer income increases and a decrease in demand as consumers income decreases.