If the income elasticity of demand for a good is

Question

If the income elasticity of demand for a good is - 3.4,a 25% increase in income results in
A)a 4% increase in quantity demanded.
B)a 0.85% increase in quantity demanded.
C)an 8.5% decrease in quantity demanded.
D)an 85% decrease in the quantity demanded.
E)There is not enough information to answer this question.

Quizplus · Accepted Answer

The income elasticity of demand is -3.4, indicating that the good is an inferior good. A 25% increase in income would lead to a 25% * -3.4 = -85% change in quantity demanded, meaning an 85% decrease.