Asksia AI LOGO

Sia

Question
Microeconomics
Posted 2 months ago

The income elasticity of demand for healthcare in Artland is 2.5. In 2001 the quantity demanded of healthcare decreased by 25%25 \%.

What kind of good is healthcare to the citizens of Artland?
Choose 1 answer:
(A) Artland's citizens consider this a normal good.
(B) Artland's citizens consider this a complementary good.
(c) Artland's citizens consider this an inferior good.
(D) Artland's citizens consider this a substitute good.
(E) Artland's citizens consider this a necessity.
Sign in to unlock the answer
Answer from Sia
Posted 2 months ago
Solution
a
Income Elasticity of Demand: The income elasticity of demand (YED) measures how the quantity demanded of a good responds to a change in income. It is calculated as YED=% change in quantity demanded% change in incomeYED = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}}
b
Given Data: The income elasticity of demand for healthcare in Artland is 2.5, and the quantity demanded of healthcare decreased by 25% in 2001
c
Interpretation of YED: A YED greater than 1 indicates that the good is a luxury good, which is a type of normal good. A YED less than 1 but greater than 0 indicates a necessity, another type of normal good. A negative YED indicates an inferior good
d
Calculation and Conclusion: Since the YED for healthcare is 2.5 (which is greater than 1), healthcare is considered a luxury good in Artland. This means that as income increases, the demand for healthcare increases more than proportionally
Answer
(A) Artland's citizens consider this a normal good.
Key Concept
Income Elasticity of Demand (YED)
Explanation
The income elasticity of demand for healthcare in Artland is 2.5, which is greater than 1. This indicates that healthcare is a luxury good, a type of normal good. As income increases, the demand for healthcare increases more than proportionally.

Not the question you are looking for? Ask here!

Enter question by text

Enter question by image

Upgrade to Asksia Pro

Join a AskSia's Pro Plan, and get 24/7 AI tutoring for your reviews, assignments, quizzes and exam preps.

Unlimited chat query usages
Strong algorithms that better know you
Early access to new release features
Study Other Question