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 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

The income elasticity of demand (YED) measures the responsiveness of demand to a change in income, and is calculated as the percentage change in quantity demanded divided by the percentage change in income. 
YED = (% change in quantity demanded) / (% change in income)

Here, there is a decrease in income from $40,000 to $30,000, which is a 25% decrease. However, there is an increase in quantity demanded from 50kg to 60kg, which is a 20% increase.

YED = (20% / -25%) = -0.8

Since the YED is negative, we know that hamburger is an inferior good for Joan. This means that as her income decreases, she buys more hamburger. Choice C is the correct answer.

Last Year, Joan Bought 50 Kg of Hamburger Mince When