Question

An​ individual's income rises from ​$77 comma 00077,000 per year to ​$83 comma 00083,000 per​ year, and as a consequence the​ person's purchases of movie downloads rise from 22 per month to 55 per month. This​ individual's income elasticity of demand is ___.
Therefore, movie downloads are ___ goods.

Answer 1

Answer:

1) 19.23/Positive

2) Normal

Explanation:

In order to calculate the income elasticity of a product we will have to measure the percentage change in income and the percentage change in  quantity purchased of that product cause by the change of income.

Percentage change income = (83,000-77,000)/77,000= 7.8%

Income increased by 7.8%.

Percentage change in purchase of movie downloads= (55-22)/22= 150%

So a 7.8% increase in income increases the purchases by 150%, in order to calculate the income elasticity we will divide 150 by 7.8

150/7.8=19.23

Income elasticity = 19.23

Because the income elasticity is positive we can infer that movie downloads are normal goods because the quantity purchased increases when income increases.