Which of the following goods would most likely have an income elasticity of -2 ?

Choose 1 answer:
(A) Airplane tickets in a society that values travel
(B) Rice in a country where it is a staple food consumed by most people
(c) Used cars in a society that values new goods
(D) Books in a society that values education

Question

Which of the following goods would most likely have an income elasticity of -2 ?

Choose 1 answer:
(A) Airplane tickets in a society that values travel
(B) Rice in a country where it is a staple food consumed by most people
(c) Used cars in a society that values new goods
(D) Books in a society that values education

Accepted Answer

∻Solution∻ ‖ a ⋮ Income Elasticity of Demand Definition: Income elasticity of demand measures how the quantity demanded of a good responds to a change in income, with all other factors held constant. It is calculated using the formula: $E_{I} = \frac{\% \Delta Q_{D}}{\% \Delta I}$, where $E_{I}$ is the income elasticity, $\% \Delta Q_{D}$ is the percentage change in quantity demanded, and $\% \Delta I$ is the percentage change in income. ‖ ‖ b ⋮ Interpretation of Income Elasticity Values: If the income elasticity of demand is negative, the good is considered an inferior good, meaning that as income increases, the demand for the good decreases. A value of -2 indicates a relatively high degree of responsiveness to income changes. ‖ ‖ c ⋮ Analysis of Answer Choices: - Airplane tickets in a society that values travel (A) are likely to have a positive income elasticity because they are normal goods. - Rice in a country where it is a staple food (B) is likely to have low income elasticity, positive or negative, because it is a necessity. - Used cars in a society that values new goods (C) could have a negative income elasticity, as higher income would lead people to buy new cars instead. - Books in a society that values education (D) are likely to have a positive income elasticity because they are normal goods. ‖ ‖ d ⋮ Selection of Correct Answer: Based on the given information, the good with an income elasticity of -2 would be an inferior good. Among the options, used cars in a society that values new goods (C) is the most likely to be considered inferior, as higher incomes would lead to a decrease in demand for used cars. ‖ ∻Answer∻ ⚹ C: Used cars in a society that values new goods ⚹ ∻Key Concept∻ ⚹ Income Elasticity of Demand ⚹ ∻Explanation∻ ⚹ A negative income elasticity of demand indicates an inferior good, and a value of -2 suggests a strong inverse relationship between income and the quantity demanded of the good.◊What is the formula for calculating income elasticity of demand in economics?⍭ Generate me a similar question◊⚹

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