Question

ECONOMICS
Data collected from the economy of Cardtown reveals that a 16% increase in income leads to the following changes:
• A 12% increase in the quantity of flops demanded
• A 14% decrease in the quantity of clubs demanded
• A 28% increase in the quantity of houses demanded
Compute the income elasticity of demand for each good and use the dropdown menus to complete the first column in the following table. Then, based on its income elasticity, indicate whether each good is a normal good or an inferior good. (Hint: Be careful to keep track of the direction of change. The sign of the income elasticity of demand can be positive or negative, and the sign confers important information.)

Answer 1

The demand elasticity is recognise the value which measures the change in the quantity requested whenever the income changes inside a given percentage. Its formula is em = change in percent in M by Q/percent, and the further calculation can be defined as follows:

$\to em (flops) = \frac{+12\% }{+16\%} = +0.75$ Because em is +, flops are a regular good.

$\to em (clubs) = \frac{-14\%}{+16\%} = -0.875\ \ or \ -0.88$ Because em is -, clubs are good less.

$\to em (aces) = \frac{+28\%}{+16\%} = +1.75$ Aces are a normal good since em is +.

The elasticity of luxury goods exceeds that and that's why ACES are luxury goods.

Therefore, the final answer is "Hence".

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