Advertisements
Advertisements
Question
If demand falls by 5 percent due to an increase in income by 20 percent, calculate the income elasticity of demand. What type of commodity is this?
Numerical
Advertisements
Solution
ey = `"Percentage change in demand"/"Percentage change in income"`
= `(–5)/20 = – 0.25`
Since income elasticity of demand is negative, this is an inferior good.
shaalaa.com
Is there an error in this question or solution?
