Shawna wins the lottery and her income increases by 60 percent.She used to buy 10 pints of cottage cheese per month and now she buys 12 pints.Her income elasticity of demand for cottage cheese is ________,making it a(n)________ good.
A) 3; luxury
B) 3.59; normal
C) 0.33; necessity
D) 0.28; inferior
E) -0.33; inferior

Question

Quizplus · Accepted Answer

The income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, the quantity demanded of cottage cheese increases from 10 to 12 pints, a 20% increase (2/10 = 0.2 or 20%). Shawna's income increases by 60%. Therefore, the income elasticity of demand is 0.33 (20%/60%). An elasticity less than 1 indicates a necessity good, as the proportionate increase in quantity demanded is less than the proportionate increase in income.

Shawna Wins the Lottery and Her Income Increases by 60