Question

b. True or false: an income elasticity of demand of 0.45 for all medical products implies that consumption will be higher among low-income people than among high-income groups. Explain

Answer 1

Answer:

False.

Explanation:

Elasticity of demand is a measure of the responsiveness of changes in demand to change in price.

The value of elasticity shows type of good. Negative elasticity indicates that a good is inferior, and people will buy it when their income is low. But once income rises they will buy more luxurious goods. That is not the case here as elasticity is positive.

When elasticity is positive the good is a normal good and increase in income will result in increase in amount demanded of the good.

In the scenario give a positive elasticity of 0.45 should result in higher consumption among higher income people than lower income people.