A 10% decrease in income increases the quantity demanded of online movie rentals by 3%. The income elasticity of demand for online movie rentals is _____, and online movie rentals are a(n) _____ good.
A)-3.3; inferior
B)3.3; normal
C)-0.3; inferior
D)0.3; 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 (3% / -10%) = -0.3, indicating that online movie rentals are an inferior good, as demand increases when income decreases.

A 10% Decrease in Income Increases the Quantity Demanded of Online