Assume that a three percent increase in income results in a four percent decrease in the quantity demanded of a good.What is the income elasticity of demand for the good,and what type of good is it
A)negative, and therefore the good is an inferior good
B)negative, and therefore the good is a normal good
C)positive, and therefore the good is an inferior good
D)positive, and therefore the good is a normal good

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, we have a negative relationship between income and quantity demanded, which means the income elasticity of demand is negative. As the income increases, the quantity demanded decreases. This indicates that the good is an inferior good.

Assume That a Three Percent Increase in Income Results in a Four