If Ana's income elasticity of demand for rice is -2, what happens to the quantity of rice she buys if her income decreases by 20 percent?
A) She buys 20 percent more rice.
B) She buys 20 percent less rice.
C) She buys 40 percent less rice.
D) She buys 40 percent more rice.

Question

Quizplus · Accepted Answer

The income elasticity of demand for rice being -2 means that rice is an inferior good for Ana (negative elasticity). A 20 percent decrease in income leads to a 40 percent increase in the quantity of rice she buys, as the change in quantity demanded is the product of the income elasticity of demand and the percentage change in income.

If Ana's Income Elasticity of Demand for Rice Is -2