Question

When her income increased from $10,000 to $20,000, Heather's consumption of macaroni decreased from 10 pounds to 5 pounds and her consumption of soy-burgers increased from 2 pounds to 4 pounds. We can conclude that for Heather, macaroni
is an inferior good with an income elasticity of -1 and soy-burgers are normal goods with an income elasticity of 1 T/F

Answer 1

Answer:

This statement is true.

Explanation:

The concept of income elasticity measures a change in the demand because of change in the income of the consumer.

It is calculated as the ratio of change in demand to change in income.

A person was earning $10,000. Her income increased to $20,000.

Her consumption of macaroni decreased from 10 pounds to 5 pounds.

While her consumption of soy-burgers increased from 2 pounds to 4 pounds.

Income elasticity for macaroni

= $\frac{\% \Delta Q}{\% \Delta Y}$

= $\frac{\frac{5-10}{5} }{\frac{20,000 -10,000}{10,000} }$

=$\frac{\frac{-5}{5} }{\frac{10,000}{10,000} }$

=$\frac{-1}{1}$

= -1

Income elasticity for soy-burgers

= $\frac{\% \Delta Q}{\% \Delta Y}$

= $\frac{\frac{4-2}{2} }{\frac{20,000 -10,000}{10,000} }$

=$\frac{\frac{2}{2} }{\frac{10,000}{10,000} }$

= 1

So, we see that macaroni has a negative income elasticity, its demand decreases with increase in income. Macaroni is an inferior good.

Soy-burgers sow a positive income elasticity. Their demand increases with increase in income. They are normal goods.