Question

If Jack bought 12 DVDs last year when his income was $40,000 and he buys 14 DVDs this year when his income is $43,000, then his income elasticity of demand is ______________ which means that DVDs are a(n) ______________ good for Jack.

Answer 1

Answer:

His income elasticity of demand is 0.16  which means that DVDs are a(n) normal income elasticity of demand as it is less than 1

Explanation:

In this question, we use the formula of income elasticity of demand which is shown below:

Income elasticity of demand = Percentage change in quantity demanded ÷ Percentage change in income

where,

Percentage change in quantity demanded is calculated by

= New Quantity - Old quantity ÷ New Quantity + Old quantity

= 14 - 12 ÷ 14 + 12

= 2 ÷ 26

= 0.07692

Percentage change in income is calculated by

= New income - Old income ÷ New income + Old income

= $43,000 - $40,000 ÷ $43,000 + $40,000

= $3,000 ÷ 63,000

= 0.47619

Now put these values over the above formula

So, the answer is = 0.07692 ÷ 0.47619 = 0.16

Hence, his income elasticity of demand is 0.16  which means that DVDs are a(n) normal income elasticity of demand as it is less than 1