When Pam's income increased by $10 \%$, she bought $5 \%$ fewer containers of yogurt.

What kind of good does Pam consider yougurt?
Choose 1 answer:
(A) A normal necessity
(B) An inferior good
(c) A normal luxury

D Complementary with peaches
(E) Substitute for eggs

Question

When Pam's income increased by $10 \%$, she bought $5 \%$ fewer containers of yogurt.

What kind of good does Pam consider yougurt?
Choose 1 answer:
(A) A normal necessity
(B) An inferior good
(c) A normal luxury

D Complementary with peaches
(E) Substitute for eggs

Accepted Answer

∻Solution∻ ‖ a ⋮ Income Elasticity of Demand: The income elasticity of demand measures how the quantity demanded of a good responds to a change in income. It is calculated as $E_I = \frac{\% \Delta Q_d}{\% \Delta I}$, where $E_I$ is the income elasticity of demand, $\% \Delta Q_d$ is the percentage change in quantity demanded, and $\% \Delta I$ is the percentage change in income. ‖ ‖ b ⋮ Calculation: Given that Pam's income increased by $10\%$ and she bought $5\%$ fewer containers of yogurt, we can calculate the income elasticity of demand as follows: $$ E_I = \frac{-5\%}{10\%} = -0.5 $$ ‖ ‖ c ⋮ Interpretation: An income elasticity of demand of $-0.5$ indicates that yogurt is an inferior good for Pam. Inferior goods have a negative income elasticity of demand, meaning that as income increases, the quantity demanded decreases. ‖ ∻Answer∻ ⚹ (B) An inferior good ⚹ ∻Key Concept∻ ⚹ Income Elasticity of Demand ⚹ ∻Explanation∻ ⚹ The income elasticity of demand for yogurt is $-0.5$, indicating that yogurt is an inferior good for Pam. This means that as her income increases, she buys fewer containers of yogurt. ⚹◊What is the income elasticity of demand for yogurt in this scenario?⍭ Generate me a similar question◊

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