Supposed the income elasticity of demand for renting apartments i. Rhode island is estimated at - 1.25. Based o. This estimate, are renting apartments in Rhode Island considered to be a normal good or an inferior good? Why?

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Kali Clay

Business

21 December, 04:57

Supposed the income elasticity of demand for renting apartments i. Rhode island is estimated at - 1.25. Based o. This estimate, are renting apartments in Rhode Island considered to be a normal good or an inferior good? Why?

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Bolton · Answer 1

Inferior good

Explanation:

If the income elasticity of demand for renting apartments in Rhode island is estimated at - 1.25. Based on this estimate, the renting of apartments in Rhode Island is considered to be an inferior good

The reason is that the income correlation coefficient is negative which implies that when income increases, demand for the apartments in Rhode Island falls.

It means that people only rent houses there when they are low on income or out of jobs but as soon as their income increases, they move to a better place.

For Rhode Island apartments to have been a normal good, it would have meant that the normal expectation of buyers demanding more when they have more money to buy, would have been the case; in which instance the income elasticity would have been positive.