Question

Attempts: Do No Harm: /2 7. Using the income elasticity of demand to characterize goods Data collected from the economy of Cardtown reveals that an 18% increase in income leads to the following changes: • A 29% increase in the quantity of houses demanded • A 17% decrease in the quantity of clubs demanded • A 14% increase in the quantity of chips 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.) Good Income Elasticity of Demand Normal or Inferior Good Normal Houses Clubs Inferior Chips Normal

Answer 1

(IED) is litke income elasticity of derround given by TED = .l. charge in quantity demo t change in income I) for house IED = 6 = 1.61 (Noi mal goods ) Since.positivę IED clubs =-17 21 For --Orgy inferior goods fincel Negative IED 3) for Chips = = 0.78 (Normal good?