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
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.