Suppose that the economy is growing and that incomes increase by 8%. The demand for travel by bus decreases by 12%. What is the income elasticity for bus travel?
A) -1.5
B) 1.5
C) .66
D) 66.67

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. Here, it is (-12% / 8%) = -1.5, indicating that bus travel is an inferior good (demand decreases as income increases).

Suppose That the Economy Is Growing and That Incomes Increase