When income increases from $20,000 to $30,000 the quantity of inter-city bus trips taken per year decreases from 10 to 8.Hence
A) inter-city bus trips are a normal good.
B) the income elasticity of demand for inter-city bus trips is -1.8.
C) the income elasticity of demand for inter-city bus trips is -0.56.
D) Both answers A and B are correct.
E) Both answers A and C are correct.

Question

Quizplus · Accepted Answer

The income elasticity of demand (IED) is calculated using the formula: IED = (% change in quantity demanded) / (% change in income). Here, the quantity demanded decreases from 10 to 8 trips, a decrease of 20%, and income increases from $20,000 to $30,000, an increase of 50%. Thus, IED = (-20%) / (50%) = -0.4 (not -0.56 as stated, indicating a mistake in the calculation provided in the options). However, since the quantity demanded decreases as income increases, inter-city bus trips are an inferior good, not a normal good. Therefore, the correct calculation based on the provided options should align with recognizing inter-city bus trips as an inferior good, but given the options, C is the closest to a correct interpretation despite the numerical inaccuracy.

When Income Increases from $20,000 to $30,000 the Quantity of Inter-City