Answer to Question #223708 in Macroeconomics for France

Question

if a 10% increase in income causes a 20% increase in the quantity demanded for a good or services .it can be concluded that

Answer 1

Solution:

It can be concluded that the income elasticity of demand for that particular good or service is highly elastic since it is positive and has a value greater than one. This particular good or service is also a luxury since they represent normal goods or services associated with income elasticities of demand that are greater than one. That is, consumers will tend to buy more of a particular good or service compared to a small percentage change in their income.

The income elasticity of demand formula is the percentage change in quantity demanded divided by the percentage change in income.

Income elasticity of demand = $\frac{20\%}{10\%}$ = 2, which is greater than one.