Suppose the income elasticity of demand for toys is +2.4. This means that
A)a 4 percent increase in income will increase the purchase of toys by 9.6 percent.
B)a 4 percent increase in income will increase the purchase of toys by 1.67 percent.
C)a 4 percent increase in income will decrease the purchase of toys by 9.6 percent.
D)toys are an inferior good.

Question

Quizplus · Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good responds to a change in income, with a positive elasticity indicating that the good is a normal good (demand increases as income increases). Here, an elasticity of +2.4 means that for every 1% increase in income, the demand for toys increases by 2.4%. Therefore, a 4% increase in income leads to a 9.6% increase in the purchase of toys (2.4 * 4 = 9.6).

Suppose the Income Elasticity of Demand for Toys Is +2