Answer:
The income elasticity of demand is 0.5
The Outfitter's products are a normal good and a necessity as the YED is positive and between 0 and 1 respectively.
Explanation:
Income elasticity of demand (YED) measures the responsiveness of demand for a product to changes in income of the people. It traces how changes in income bring about a change in demand for a product. The formula for YED is,
YED = % Change in Quantity demanded / %Change in Income
YED = 10% / 20% = 0.5
The income elasticity of demand for the outfitter is a positive 0.5 which represents that the outfitters products are a normal good as the YED is positive and an increase in income bring about an increase in demand.
Moreover, am income elasticity of demand between 0 and 1 represents goods which are considered to be a necessity and the demand for these goods rises at a lower percentage than the change in income. As, the YED for the outfitter is 0.5, it is a necessity.
Answer:
a)
Income elasticity of demand = 0.5.
b)
it implies that a change in income by a given percentage would produce a 50% change in the quantity of demand.
Explanation:
The income elasticity of demand measures the degree of responsiveness of demand for a product to a change in the consumer income.
If a change in consumer income by a given percentage produces a less than a proportionate change in quantity demand , the income elasticity of demand is inelastic . It is elastic if the reverse is the case
Income elasticity of demand =
=% change in demand/ % change in income
=10%/20%
= 0.5.
it implies that a change in income by a given percentage would produce a 50% change in the quantity of demand. For example, if income decreases by 100%, the quantity demand will decrease by just 50%
