Mr. Arias's income elasticity of demand for pawpaw fruit is -1.5. What happens to the quantity of pawpaw fruit that he buys if his income increases by 10 percent?
A) He buys 15 percent more pawpaw fruit.
B) He buys 1.5 percent less pawpaw fruit.
C) He buys 15 percent less pawpaw fruit.
D) He buys 1.5 percent more pawpaw fruit.

Question

Quizplus · Accepted Answer

The negative income elasticity of demand indicates that pawpaw fruit is an inferior good for Mr. Arias, meaning that as his income increases, he buys less of it. A 10 percent increase in income leads to a 15 percent decrease in the quantity of pawpaw fruit he buys, calculated as -1.5 times the 10 percent income increase.

Mr Arias's Income Elasticity of Demand for Pawpaw Fruit Is