Suppose the income elasticity of demand for toys is +2.0. This means that
A)a 10 percent increase in income will increase the purchase of toys by 20 percent.
B)a 10 percent increase in income will increase the purchase of toys by 2 percent.
C)a 10 percent increase in income will decrease the purchase of toys by 2 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). An elasticity of +2.0 means that for every 1% increase in income, the demand for toys increases by 2%. Therefore, a 10% increase in income leads to a 20% increase in the purchase of toys.

Suppose the Income Elasticity of Demand for Toys Is +2