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13 January, 05:30

Suppose that when household income in a city rises by 2%, and the price of good X remains unchanged, the quantity demanded of good X decreases by 15%. Then, in this city, the income elasticity of demand for good X is (7.50, - 7.50, - 0.13, 0.13), and you know that good X is (an inferior good, a normal good).

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  1. 13 January, 05:48
    0
    Answer: - 7.50; Inferior good

    Step-by-step explanation:

    Income elasticity of demand shows the relationship that exists between the quantity demanded of a good and its price. It is calculated as the % change in quantity demanded divided by the % change in price.

    From the question, when income increases by 2%, the quantity demanded falls by 15%, then the income elasticity of demand is:

    -15% : 2% = - 7.50

    Good X is an inferior good. Inferior good have a negative income elasticity of demand. As the income of q consumer increases, the quantity demanded reduces.
  2. 13 January, 05:50
    0
    Step-by-step explanation:

    income elasticity of demand for the good X = % change in quantity demanded / % change in income of consumer = - 15 / 2 = - 7.50 negative since it is a decrease in demand.

    and the good X is an inferior good since increase income brings about a decrease in quantity demanded of the goods compared to normal good where a decrease in income brings about decrease in quantity demanded and an increase in income brings about increase in quantity demanded.
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