Answer to Question #258931 in Microeconomics for Avni Dixig

Question

The income elasticities of demand for movies, dental services, and clothing have been

estimated to be + 3.4, +1 and +0.5, respectively. Interpret these coefficients, what does it

mean if an income elasticity coefficient is negative?

Answer 1

 Movies,dental services and clothingare all normal goods because ;income and quantity demanded move in the same direction. The coefficients shown reveal that a 1 percent increase in income will increase the quantity of movies demanded by 3.4 percent, dental services by 1 percent, and clothing by 0.5 percent. A negative coefficient indicates an inferior good.Income and quantity demanded move in the opposite direction.