Answer to Question #24510 in Economics of Enterprise for loide

Question

Mensy Ltd produces two goods that have income elasticity values as follows.
Good A=-0.5 and good B=4
Explain the income elasticity of demand for good A and good B

Answer 1

The Income Elasticity of Demand measures the rate of response of quantity demand due to a raise (or lowering) in a consumers
income.
Good A has IEoD < -0.5. It is an Inferior Good and Negative Income
Inelastic . Inferior goods can be viewed as anything a consumer would demand
less of if they had a higher level of real income.
Good B has IEoD > 1. It is a Luxury Good and Income Elastic. A good is
considered a luxury when a person must have a certain income or wealth level in
order to feasibly purchase it.