If the income elasticity of demand for tea is 0.50, tea is a
A) substitute for coffee.
B) luxury good.
C) normal good.
D) complement of coffee.

Question

Quizplus · Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good responds to a change in income. A positive elasticity less than 1 (0.50 in this case) indicates that tea is a normal good, meaning demand for it increases as income increases, but at a slower rate than the increase in income.

If the Income Elasticity of Demand for Tea Is 0