Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question 5:
(a) Define the Income elasticity of demand?
The income elasticity of demand is an economic way to measure the quantity demanded for a good a
according to the change in real income level of individuals. To calculate it, percentage change in
quantity demanded is divided by percentage change in income.
Types of income elasticity of demand:-
1. Elastic high - when the quantity demanded is high as a result of rise in income.
2. Unitary:-when the change in income is propationate to the change in quantity demanded.
3. Inelastic/ low:-when the increase in income results less quantity demanded for a good.
(b) What is a normal and an inferior good?
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