Shawna wins the lottery and her income increases by 60%. 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

Income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, the quantity demanded increased by 20% (from 10 to 12 pints), and income increased by 60%. Thus, the elasticity is 0.33 (20%/60%), indicating cottage cheese is a necessity.

Shawna Wins the Lottery and Her Income Increases by 60