Question

An​ individual's income rises from ​$77 comma 000 per year to ​$82 comma 000 per​ year, and as a consequence the​ person's purchases of movie downloads rise from 2 per month to 4 per month. This individual's income elasticity of demand is _____. (Enter you response rounded to 2 decimal places.)Therefore, movie downloads are _____ goods.

Answer 1

Answer:

16.67

normal

Explanation:

Income Elasticity of Demand = $\frac{Percent Change In Quantity Demanded}{ Percent Change In Income}$

% change in movie downloads = (4 - 2) / 2

% change in movie downloads = 2 / 2

% change in movie downloads = 1

or

% Change in quantity demanded = 100%

% change in income = ($82,000 - $77,000) / $77,000

% change in income = $5,000 / $77,000

% change in income = 0.06

or

% change in income = 6%

Income Elasticity of Demand = 100% / 6%

Income Elasticity of Demand = 16.67

When the Income Elasticity of Demand is positive, it is usually Normal Goods. As Income goes up, similarly the movie downloads or quantity demanded going up. So, this is a normal good.