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
