Suppose that when Mary’s income increases from RM56,000 to RM60,000 per year, her
purchase of good B decreased from 10 units to 5 units.
i. Calculate the coefficient of income elasticity of demand.
ii. Interpret the value of the coefficient above.
i) percentage change in income ="\\frac{60000-56000}{56000}\\times 100\\%=7.143\\%"
Percentage change in quantity demanded "=\\frac{5-10}{10}\\times 100\\%=-50\\%"
Income elasticity of demand "=" percentage change in quantity demanded"\/" percentage change in income"=\\frac{7.143}{-50}=-0.14286"
ii) The value of the coefficient is negative showing that good B is an inferior good.
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