If a 10 per cent increase in income results in an 8 per cent increase in the quantity demanded of a good, the income elasticity of demand equals _______ and the good is _______ good.
A) 1.2; a normal
B) - 1.2; an inferior
C) 0.80; a normal
D) 0.80; an 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, which equals 0.8 (8% / 10%). A positive elasticity indicates a normal good, as demand increases with income.

If a 10 Per Cent Increase in Income Results in an 8