When Pam's income increased by $10 \%$, she bought $5 \%$ fewer containers of yogurt.

What kind of good does Pam consider yougurt?

Choose 1 answer:
(A) A normal necessity
(B) Substitute for eggs
(C) Complementary with peaches
(D) An inferior good
(E) A normal luxury

Question

When Pam's income increased by $10 \%$, she bought $5 \%$ fewer containers of yogurt.

What kind of good does Pam consider yougurt?

Choose 1 answer:
(A) A normal necessity
(B) Substitute for eggs
(C) Complementary with peaches
(D) An inferior good
(E) A normal luxury

Accepted Answer

∻Solution∻ ‖ a ⋮ Income Elasticity of Demand: The income elasticity of demand measures how the quantity demanded of a good responds to a change in income. It is calculated using the formula: $E_I = \frac{\% \Delta QD}{\% \Delta I}$, where $E_I$ is the income elasticity of demand, $\% \Delta QD$ is the percentage change in quantity demanded, and $\% \Delta I$ is the percentage change in income. ‖ ‖ b ⋮ Classification of Goods: If $E_I > 0$, the good is a normal good, meaning that demand for the good increases as income increases. If $E_I < 0$, the good is an inferior good, meaning that demand for the good decreases as income increases. Within normal goods, if $0 < E_I < 1$, it is considered a necessity, and if $E_I > 1$, it is considered a luxury. ‖ ‖ c ⋮ Calculation for Pam's Yogurt: Given that Pam's income increased by $10\%$ and she bought $5\%$ fewer containers of yogurt, we can calculate the income elasticity of demand for yogurt as $E_I = \frac{-5\%}{10\%} = -0.5$. ‖ ∻Answer∻ ⚹ D) An inferior good ⚹ ∻Key Concept∻ ⚹ Income Elasticity of Demand ⚹ ∻Explanation∻ ⚹ Since Pam buys fewer containers of yogurt as her income increases, yogurt is an inferior good for her, indicated by a negative income elasticity of demand. ⚹◊What type of elasticity is Pam's income related to her consumption of yogurt?⍭ Generate me a similar question◊

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