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7. Using the income elasticity of demand to characterize goods Data collected from the economy of Cardtown...

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Economics

7. Using the income elasticity of demand to characterizegoods

Data collected from the economy of Cardtown reveals that a 13%increase in income leads to the following changes:

•A 34% increase in the quantity of houses demanded
•A 19% decrease in the quantity of clubs demanded
•A 4% increase in the quantity of flops demanded

Compute the income elasticity of demand for each good and usethe dropdown menus to complete the first column in the followingtable. Then, based on its income elasticity, indicate whether eachgood is a normal good or an inferior good. (Hint: Be careful tokeep track of the direction of change. The sign of the incomeelasticity of demand can be positive or negative, and the signconfers important information.)

Good

Income Elasticity of Demand

Normal or Inferior Good

Houses    
Clubs    
Flops    

Which of the following three goods is most likely to beclassified as a luxury good ?

Clubs

Flops

Houses

Answer & Explanation Solved by verified expert
3.6 Ratings (259 Votes)
A 13 increase in income leads to a 34 increase in the quantity of houses demanded would mean that the Houses are considered as a normal good Income elasticity of demand equals percent change in quantity demanded divided by percentage change in    See Answer
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