Suppose the income elasticity of demand for toys is +2.00. This means that
A) a 10 percent increase in income will increase the purchase of toys by 20 percent.
B) a 10 percent increase in income will increase the purchase of toys by 2 percent.
C) a 10 percent increase in income will decrease the purchase of toys by 2 percent.
D) toys are an inferior good.

Question

Quizplus · Accepted Answer

A positive income elasticity of demand means that as income increases, the demand for normal goods also increases. A +2.00 income elasticity of demand for toys means that for every 1 percent increase in income, the demand for toys increases by 2 percent. Therefore, a 10 percent increase in income would lead to a 20 percent increase in the purchase of toys.

Suppose the Income Elasticity of Demand for Toys Is +2