In the nation of Transporta, the income elasticity of demand for used cars is -2.66. So when incomes in this nation increase by 10 percent
A) the quantity of used cars demanded will increase by 26.6 percent.
B) used cars will be normal goods.
C) the quantity of used cars demanded will decrease by 26.6 percent.
D) the demand curve for used cars will shift rightward.

Question

Quizplus · Accepted Answer

Income elasticity of demand measures how the quantity demanded of a good responds to a change in income. A negative elasticity, such as -2.66, indicates that used cars are inferior goods, meaning demand decreases as income increases. Therefore, a 10% increase in income will lead to a 26.6% decrease in the quantity of used cars demanded.

In the Nation of Transporta, the Income Elasticity of Demand