Last year,Joan bought 50 pounds of hamburger when her household's income was $40,000.This year,her household income was only $30,000 and Joan bought 60 pounds of hamburger.All else constant,Joan's income elasticity of demand for hamburger is
A)positive,so Joan considers hamburger to be an inferior good.
B)positive,so Joan considers hamburger to be a normal good and a necessity.
C)negative,so Joan considers hamburger to be an inferior good.
D)negative,so Joan considers hamburger to be a normal good but not a necessity.

Question

Quizplus · Accepted Answer

Income elasticity of demand (YED) measures the responsiveness of quantity demanded to a change in income, all else constant. YED is calculated as the percentage change in quantity demanded divided by the percentage change in income.

In this case, we can calculate Joan's YED for hamburger as:

YED = [(60-50)/50] / [(30,000-40,000)/40,000] = -1

Since YED is negative, this means that Joan's demand for hamburger decreases when her income decreases. Therefore, hamburger is an inferior good for Joan. The correct choice is C: negative, so Joan considers hamburger to be an inferior good.

Last Year,Joan Bought 50 Pounds of Hamburger When Her Household's