Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

Question

Quizplus · Accepted Answer

The coefficient of income elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, it is positive (3% / 6% = 0.5), indicating that as income increases, the demand for good X also increases. This characteristic defines good X as a normal good, not an inferior one.

Assume That a 6 Percent Increase in Income in the Economy