Assume that a 4 percent increase in income across the economy produces an 8 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is
A) negative, and therefore X is an inferior good.
B) negative, and therefore X is a normal good.
C) positive, and therefore X is an inferior good.
D) positive, and therefore X is a normal good.

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 8% / 4% = 2, which is positive. A positive income elasticity indicates that good X is a normal good.

Assume That a 4 Percent Increase in Income Across the Economy