In the town of Skateville, average income falls by 20% due to a recession. As a result, sales of skateboards fall by 15%. The income elasticity of demand is _____, and skateboards are a(n) _____ good.
A) 0.75; inferior
B) 0.75; normal
C) 1.33; inferior
D) 1.33; normal

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 -15% / -20% = 0.75. A positive elasticity indicates a normal good, as demand decreases when income decreases.

In the Town of Skateville, Average Income Falls by 20