Question

Sebastian received a raise this year so his income climbed from $45,000 to $52,000. Last year Sebastian purchased 2 sunglasses. This year he has purchased 7 sunglasses. Assuming that all of the other things remain constant, what type of a good are sunglasses and what type of income elasticity of demand does Sebastian have

Answer 1

Answer:

normal good

elastic demand

Explanation:

Income elasticity of demand measures the responsiveness of quantity demanded to changes in income.

Income elasticity = percentage change in quantity demanded / percentage change in income

percentage change in quantity demanded = (7/2) - 1 = 250%

percentage change in income = (52,000 / 45,000) - 1 = 15.6%

250 / 15.6 =  16.07

If the absolute value of income elasticity of demand is greater than one, it means demand is elastic.

Normal goods are goods that are goods whose demand increases when income increases and falls when income falls

Inferior goods are goods whose demand falls when income rises and increases when income falls.