Which of the following questions can be answered using income elasticity of demand?

Choose 1 answer:
(A) If the price of a good increases, will total revenue increase or decrease?
(B) Is this good a complement or a substitute for another good?
(C) Is this good a normal good or inferior good?
(D) If the price of a good decreases, will total revenue increase or decrease?
(E) How will sellers respond to an increase in the price of a good?

Question

Which of the following questions can be answered using income elasticity of demand?

Choose 1 answer:
(A) If the price of a good increases, will total revenue increase or decrease?
(B) Is this good a complement or a substitute for another good?
(C) Is this good a normal good or inferior good?
(D) If the price of a good decreases, will total revenue increase or decrease?
(E) How will sellers respond to an increase in the price of a good?

Accepted Answer

∻Solution∻ ‖ a ⋮ Income Elasticity of Demand Definition: Income elasticity of demand measures how the quantity demanded of a good responds to a change in consumers' income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income. ‖ ‖ b ⋮ Classification of Goods: Based on the income elasticity of demand, goods can be classified as normal or inferior. A normal good has a positive income elasticity, meaning that demand for the good increases as income increases. An inferior good has a negative income elasticity, meaning that demand for the good decreases as income increases. ‖ ∻Answer∻ ⚹ Option C: Is this good a normal good or inferior good? ⚹ ∻Key Concept∻ ⚹ Income Elasticity of Demand ⚹ ∻Explanation∻ ⚹ Income elasticity of demand is used to determine whether a good is a normal good or an inferior good based on how demand changes with income. ⚹◊How does income elasticity of demand affect total revenue when the price of a good increases or decreases?⍭ Generate me a similar question◊

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