Assume that a 3 percent increase in income across the economy produces a 1 percent decline in the quantity demanded of good X. The coefficient of income elasticity of demand for good X 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 -1% / 3% = -0.33, which is negative, indicating that good X is an inferior good.

Assume That a 3 Percent Increase in Income Across the Economy