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mars1129 [50]
2 years ago
9

In words, what does it mean when an economic consultant states:" kevin's income elasticity of red wine is equal to 6?

Business
1 answer:
Lady_Fox [76]2 years ago
6 0

When an economist says that "Kevin's income elasticity of red wine is 6" he means that if Kevin's income increases by 10%, the quantity of red wine demanded by Kevin rises by 60%. So, red wine is income elastic. Since the income elasticity is greater than 1, red wine is a luxury good for Kevin.


Income elasticity measures the change in the quantity of goods demanded relative to a change in income.

If an increase in income results in a decrease in the quantity of goods demanded, then that good is an inferior or cheap good. The income elasticity of a cheap good is negative.

If the demand for a good rises with an increase in income, then that good is a normal good. The income elasticity of normal goods is greater than zero.

If an increase in income results in a greater increase in the quantity of goods demanded, then that good is a luxury good. The income elasticity of a luxury good is greater than 1.

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Answer:

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