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Suppose income increases by 25 percent​ and, as a​ result, the quantity of a particular brand of automobile demanded​ (holding the price for this particular automobile​ constant) decreasesdecreases by 37 percent. The income elasticity of demand for this brand of car is_____. This particular brand of automobile is​ a(n) _____ good. In another​ example, suppose market research shows that a particular brand of truck is a normal good and a luxury. If​ so, then the income elasticity of demand for this truck is:______.
A. Less than 1 but greater than 0.
B. Negative.
C. Greater than 1.
D. Positive.
E. Zero.

Respuesta :

Answer:

-1.48; Inferior good

Option (D) is correct.

Explanation:

Given that,

Income increases by 25 percent​ and quantity of a particular brand of automobile demanded decreases by 37 percent.

Therefore, the income elasticity of demand for this brand of car is as follows:

= Percentage change in quantity demanded ÷ Percentage change in Income

= (- 37) ÷ 25

= -1.48

Negative income elasticity of demand indicates that this particular brand of car is an inferior good.

There is a positive relationship between the income of the consumer and the quantity demanded for normal goods. This means that as the income of the consumer increases then as a result the quantity demanded for normal goods also increases and as the income of the consumer decreases then as a result the quantity demanded for normal goods also decreases.

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