Question

Mensy ltd, produce two goods that have income elasticity values as follows- Good A= -0.5 and Good B=4.
a) explain the income elasticity of demand for good A and good B

Answer 1

Income elasticity for Good A is -0.5. It means that when income increases on one point, consumption of this Good A decreases on 0.5 points. It can be some cheap product, which person could eliminate from its consumption basket when income increases.
Income elasticity for Good B is 4. It means that when income increases on one point, consumption of this Good B increases on 4 points. It can be some basic product, which person could not eliminate from its consumption basket and tries to consume more with income increase.