If the income-elasticity coefficient for coffee is 0.5,the demand for coffee will ________.
A) decrease 0.5 percent for every 1.0 percent increase in income
B) increase 1.0 percent for every 5.0 percent increase in income
C) increase 0.5 percent for every 1.0 percent increase in income
D) decrease 0.5 percent for every 0.5 percent increase in income

Question

Quizplus · Accepted Answer

A positive income-elasticity coefficient indicates that the good is a normal good, i.e., as income increases, the demand for the good increases as well. A coefficient of 0.5 means that for every 1 percent increase in income, the demand for coffee will increase by only 0.5 percent. Therefore, the best choice is C.

If the Income-Elasticity Coefficient for Coffee Is 0