Assume that a 6 percent increase in income in the economy produces a 3 percent increase in the quantity demanded of good X. The coefficient of income elasticity of demand is

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Quizplus · Accepted Answer

A positive income elasticity of demand indicates that X is a normal good, meaning that as income increases, the quantity demanded of X increases. A coefficient of 0.5 (3%/6%) indicates that the increase in quantity demanded is less than proportional to the increase in income, suggesting that X is a relatively income-inelastic good.

Assume That a 6 Percent Increase in Income in the Economy