Suppose that the economy is growing and that incomes increase by 10%. The demand for hamburger decreases by 5%. What is the income elasticity for hamburger?
A) 2.0
B) 2.2
C) 0.5
D) -0.5

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. Here, it is (-5% / 10%) = -0.5, indicating that hamburger is an inferior good (demand decreases as income increases).

Suppose That the Economy Is Growing and That Incomes Increase