Question

Suppose income increases by 25 percent​ and, as a​ result, the quantity of a particular brand of automobile demanded​ (holding the price for this particular automobile​ constant) decreasesdecreases by 37 percent. The income elasticity of demand for this brand of car is_____. This particular brand of automobile is​ a(n) _____ good. In another​ example, suppose market research shows that a particular brand of truck is a normal good and a luxury. If​ so, then the income elasticity of demand for this truck is:______.
A. Less than 1 but greater than 0.
B. Negative.
C. Greater than 1.
D. Positive.
E. Zero.

Answer 1

Answer:

-1.48

Inferior Good, as their quantity demanded decreases as the income of the consumers increases.

C. Greater than 1

As to be a normal good, the income elasticity should be positive. Then, when betwene 0 and 1 this is a necessary good used for the consumer to met their normal living standard

While above 1, menas their expense is more than proportional than income thus, it increases as the income increases more than proportionally that represent a luxury good.

Explanation:

To solve for the income elasticity we divide the variation in quantity over the variation in price:

-37/25 = -1.48