Suppose the income elasticity of demand for toys is −0.5. This means that
A)a 12 percent increase in income will decrease the purchase of toys by 6 percent.
B)a 12 percent increase in income will decrease the purchase of toys by 24 percent.
C)a 12 percent increase in income will increase the purchase of toys by 6 percent.
D)toys are a normal good.

Question

Quizplus · Accepted Answer

The income elasticity of demand formula is percentage change in quantity demanded divided by percentage change in income. A negative elasticity (-0.5) indicates that toys are an inferior good, meaning as income increases, demand decreases. A 12% increase in income leads to a 6% decrease in demand for toys (12% * -0.5 = -6%).

Suppose the Income Elasticity of Demand for Toys Is −0