Question

1. When incomes in a given country rose by 14%, demand for a certain type of pasta fell by 20%. Calculate the appropriate type of elasticity, using the methodology in the PowerPoints. You will interpret your answer in the next question. Enter only numbers, a decimal point, and/or a negative sign as needed. Round your answer to two decimal places as necessary; if you round on intermediate steps, use four places.

2. If more than one option is true, you must select all of them to get points for this question:

The pasta just described is a(n):

Group of answer choices

inelastic good

substitute

elastic good

luxury good

complement

inferior good

normal good

unit elastic good

Answer 1

Question 1

When income in the country increases by 14%, the demand for certain type of pasta fell by 20%.

In the given case, relation between income and quantity demanded is stated.

This relation is indicated by income elasticity of demand.

Percentage change in income = 14%

Percentage change in quantity demanded of pasta = -20%

Calculate the income elasticity of demand -

Income elasticity of demand = Percentage change in quantity demanded of pasta/Percentage change in income

Income elasticity of demand = (-20)/14 = -1.43

Thus,

The income elasticity of demand for pasta is -1.43

Question 2

The income elasticity of demand for pasta is negative.

When income elasticity of demand for a good is negative then that good is said to be a inferior good.

Thus,

Pasta is an inferior good.