Suppose that the value of the income elasticity of demand for a product is -2 and average incomes decrease by 10%.What will happen to the quantity demanded?
A)It will increase by 5%.
B)It will increase by 20%.
C)It will decrease by 5%.
D)It will decrease by 20%.
E)It cannot be determined without further information.

Question

Quizplus · Accepted Answer

The income elasticity of demand measures how the quantity demanded of a good responds to a change in income. A negative elasticity indicates an inferior good, meaning as income decreases, demand for the product increases. With an elasticity of -2 and a 10% decrease in income, the quantity demanded will increase by 20% (-2 * -10% = 20%).

Suppose That the Value of the Income Elasticity of Demand