What does it tell you if the income elasticity for your product is -0.5?
A) The product is inferior and an increase in income by 10% reduces demand by 5%.
B) The product is inferior and an increase in income by 10% increases demand by 50%.
C) The product is normal and an increase in income by 10% reduces demand by 5%.
D) The product is normal and an increase in income by 10% increases demand by 50%.

Question

Quizplus · Accepted Answer

An income elasticity of -0.5 indicates that the product is inferior because the elasticity is negative, meaning demand decreases as income increases. Specifically, a 10% increase in income leads to a 5% reduction in demand for the product.

What Does It Tell You If the Income Elasticity for Your