When income increases from $30,000 a year to $40,000 a year,the quantity demanded of weekend vacations by Sara increases from 2 a year to 5 a year.For Sara,the income elasticity of demand of weekend vacations is ________ and weekend vacations are ________ good.
A) 3; a normal
B) 4.5 a normal
C) 1/3; an inferior
D) -4.5; an inferior
E) 1/3; a normal

Question

Quizplus · Accepted Answer

The income elasticity of demand can be calculated as the percentage change in quantity demanded divided by the percentage change in income. Here, the percentage change in income is (40000-30000)/30000 = 33.33%, and the percentage change in quantity demanded is (5-2)/2 = 150%. Therefore, the income elasticity of demand is 150/33.33 = 4.5. Since the income elasticity is positive and greater than 1, the good is a normal good. Option A has the correct income elasticity and identifies the good as normal.

When Income Increases from $30,000 a Year to $40,000 a Year,the