Last year, Joan bought 50 kg of hamburger mince when the household income was $40 000. This year, the household income was only $30 000 and Joan bought 60 kg of hamburger mince. All else being constant, Joan's income elasticity of demand for hamburger mince 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 mince to be an inferior good
D) negative, so Joan considers hamburger mince to be a normal good

Question

Quizplus · Accepted Answer

To calculate income elasticity of demand, we use the formula:
Income elasticity of demand = (Percentage change in quantity demanded / Percentage change in income)

Percentage change in income = ((30,000 - 40,000)/40,000) x 100% = -25%

Percentage change in quantity demanded = ((60 - 50)/50) x 100% = 20%

Income elasticity of demand = (20% / -25%) = -0.8

Since the income elasticity of demand is negative (less than 0), Joan considers hamburger mince to be an inferior good.

Last Year, Joan Bought 50 Kg of Hamburger Mince When