If the income elasticity for lobster is 0.6, a 25 percent increase in income will lead to a:
A) 6 percent drop in demand for lobster.
B) 2.4 percent increase in demand for lobster.
C) 15 percent increase in demand for lobster.
D) 42 percent increase in demand for lobster.

Question

Quizplus · Accepted Answer

An income elasticity of 0.6 indicates that lobster is a normal good, meaning that as income increases, demand for lobster also increases but at a decreasing rate. A 25 percent increase in income would result in a 15 percent increase in demand for lobster, calculated as follows: 0.6 x (25%) = 15%. Therefore, the correct answer is C.

If the Income Elasticity for Lobster Is 0