Suppose that the economy is growing and that incomes increase by 14%. The demand for foreign airline travel increases by 18%. What is the income elasticity for foreign airline travel?
A) -1.29
B) 1.29
C) .77
D) 1.77

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. In this case, it is 18% / 14% = 1.29, indicating that foreign airline travel is a normal good with an income elasticity greater than 1, meaning it's a luxury good.

Suppose That the Economy Is Growing and That Incomes Increase