If a 5 per cent increase in income brings about a 10 per cent decrease in the demand for a good, then the
A) good is an inferior good.
B) income elasticity of demand is 0.5.
C) income elasticity of demand is 5.0.
D) income elasticity of demand is 2.0.
E) good is a normal good.

Question

Quizplus · Accepted Answer

A 5% increase in income leading to a 10% decrease in demand indicates that the good is an inferior good, meaning as income increases, demand for the good decreases. A normal good would have a positive income elasticity of demand, meaning as income increases, demand for the good increases. The income elasticity of demand cannot be determined from the information given.

If a 5 Per Cent Increase in Income Brings About