Question

Can anyone check my answers?

Data collected from the economy of Royal City reveals that an 18% decrease in income leads to the following changes: . A 6% decrease in the quantity of flops demanded ·A 17% increase in the quantity of spades demanded . A 29% decrease in the quantity of aces demanded Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.) GoodIncome Elasticity of Demand Flops Spades Aces Normal or Inferior Good 0.33 0.94 1.61 ▼ Inferior Normal Inferior ▼ Which of the following three goods is most likely to be classified as a luxury good? o Spades Flops Aces

Answer 1

Income elasticity of demand = dQ/dY × Y/Q = % change in quantity/ % change in income

Income elasticity of demand for flops = -6 %/ -18% = 0.33

Income elasticity of demand for spades = 17% / -18% = - 0.94

Income elasticity of demand for aces = -29%/ -18% = 1.61

The income elasticity of demand for flops is positive, so it is a normal good.

The income elasticity of demand for spades is negative, so it is an inferior good.

The income elasticity of demand for aces is positive, so it is a normal good.

Aces have a positive income elasticity of demand greater than one , so aces are luxury good.

(The relationship between income and demand is positive for a normal good. The opposite is true for prices.)