Joe received a promotion this year at work and now has an income which has increased...
Joe received a promotion this year at work and now has an income which has increased by 21% since last year. Joe has now increased his quantity demanded of red wine by 7%. In this example, Joe’s
income elasticity is .33 and the good is a normal good.
income elasticity is .33 and the good is an inferior good.
income elasticity is .-33 and the good is an normal good
cross-price elasticity is 3 and the good is an inferior good.
Homework Answers
Income elasticity is 0.33 and the good is a normal good.
When change is quantity demanded is measured with respect to change in income of the buyers, it is called income elasticity of demand.
Income elasticity of demand= % change in quantity demanded / % change in income
=7/21
=0.33
Normal goods are those in case of which there is a positive relationship between income and quantity demanded. The demand for normal goods tends to increase with increase in income and vice versa. Here 21% increase in income increases the quantity demanded by 7%. So the good is a normal good.
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