Answer to Question #125100 in Microeconomics for Aqib

Question

When a consumer’s income increased from $54000 to $66000, they ate at a certain restaurant 36 times instead of 28. What is the income elasticity of demand in this case? Based on this calculated elasticity, what type of good is eating at this restaurant as far as this consumer is concerned?

Answer 1

The income elasticity of demand in this case is:

$Ed = \frac{36 - 28} {66000-54000} × \frac{66000+54000} {36+28} = \frac{5} {4} = 1.25.$

So, this is a normal good.