Using the income elasticity of demand to characterize goods
Data collected from the economy of Pikeville reveals that a 16% increase in income leads to the following changes:
An 18% increase in the quantity of chips demanded
A 14% decrease in the quantity of clubs demanded
A 30% increase in the quantity of houses demanded
Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good.
Good Income Elasticity of Demand Normal or Inferior Good
Chips Clubs Houses Which of the following three goods is most likely to be classified as a luxury good?
a. Clubs
b. Chips
c. Houses