a) Explain what is “income elasticity of demand”. b) Explain what is a “normal good”. Give an example. Does it have a positive or negative income elasticity? c) Explain what is an “inferior good”. Give an example. Does it have a positive or negative income elasticity?
a) Explain what is “income
b) Explain what is a “normal good”. Give an example. Does it have a positive or negative income elasticity?
c) Explain what is an “inferior good”. Give an example. Does it have a positive or negative income elasticity?
Suppose the income elasticity of demand for mangoes is + 2 (positive 2) and the income elasticity of demand for apples is – 2 (negative 2).
d) During the Covid 19 recession, average household incomes have declined by 10%. What impact will this have on the purchase of mangoes and apples? Explain why.
As it is not mentioned that which parts are to be answered, so only first three parts will be answered.
a)
Elasticity of Demand
The elasticity of demand is the change in quantity demanded of a commodity due to change in its determinants like the price of the commodity, price of other commodities, and income of consumers.
Income elasticity of Demand
The income elasticity of demand measures the percentage change in quantity demanded of a commodity due to a change in the income of consumers.
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