If a product has an income elasticity of demand of -2.5 (minus 2.5), and buyers’ incomes...
If a product has an income elasticity of demand of -2.5 (minus 2.5), and buyers’ incomes decrease by 50%, then:
purchases of this product will fall by 50%.
purchases of this product will fall by 2.5%.
purchases of this product will increase by 150%.
purchases of this product will fall by 75%.
purchases of this product will increase by 20%.
'purchases of this product will increase by 125%.
Homework Answers
Income elasticity = % change in demand / % change in income.
As the income elasticity is negative that means the good is inferior, as the income decrease the consumption will increase.
-2.5 = (x) / 50 = (x) = -2.5 x 50%
= 125%, the purchases of this product will increase by 125%.
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