If your income was to rise from $20,000 to $30,000 and the quantity of inter-city bus trips you take per year decreases from 10 to 8. Then, for you,
A) inter-city bus trips are a normal good.
B) the income elasticity of demand for inter-city bus trips is -0.56.
C) the income elasticity of demand for inter-city bus trips is -1.8.
D) Both answers A and B are correct.
E) Both answers A and C are correct.

Question

Quizplus · Accepted Answer

The income elasticity of demand (IED) is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, the quantity demanded decreases from 10 to 8 trips (a decrease of 20%), and income increases from $20,000 to $30,000 (a 50% increase). The IED = (-20%/50%) = -0.4. However, none of the provided options exactly match this calculation, suggesting a possible error in the question or in the interpretation of the options. Given the options, B is the closest, indicating a misunderstanding in the calculation in the explanation. The correct interpretation should note that a decrease in demand with an increase in income indicates the good is an inferior good, not a normal good, and the exact numerical value provided in the options does not match the calculated IED, suggesting a reevaluation of the calculation or the understanding of the options is necessary.

If Your Income Was to Rise from $20,000 to $30,000