Taking the absolute value of the income elasticity of demand is incorrect because it would:
A)remove the ability to tell whether the two products have inelastic demand or elastic demand.
B)cause the value of the cross-price elasticity of demand to become smaller.
C)remove the ability to tell whether the product is an inferior good or a normal good.
D)cause the value of the cross-price elasticity of demand to become zero.

Question

Quizplus · Accepted Answer

Taking the absolute value of the income elasticity of demand removes the ability to distinguish between inferior and normal goods. This is because normal goods have a positive income elasticity of demand (demand increases as income increases), while inferior goods have a negative income elasticity of demand (demand decreases as income increases). By taking the absolute value, you lose the sign (positive or negative) that indicates this relationship.

Taking the Absolute Value of the Income Elasticity of Demand