Assume that a 4 percent increase in income results in a 2 percent increase in the quantity demanded of a good. The income elasticity of demand for the good is
A)negative, and the good is an inferior good.
B)negative, and the good is a normal good.
C)positive, and the good is a normal good.
D)positive, and the good is an inferior good.

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is $ \frac{2\%}{4\%} = 0.5 $, which is positive, indicating that the good is a normal good (as demand increases with income).

Assume That a 4 Percent Increase in Income Results in a 2