Question

The table below shows the income elasticities for movies, dental services and clothing. Product Income Elasticity Movies +3.4 Dental services +1.0 Clothing +0.5 a. The values indicate that: a 1 percent increase in income will increase the demand for movies by 3.4 percent. movies and dental services are normal goods, but clothing is an inferior good. a 10 percent increase in income will increase the demand for clothing by 20 percent. a 5 percent increase in the price of dental services will decrease the demand for dental services by 5 percent. b. If the income elasticity coefficient is negative, it means that: the good is inferior so that if income falls, the demand for the good will rise. the good is inferior so that if income falls, the demand for the good will fall. the good is inferior so that if price falls, the demand for the good will rise. the good is normal so that if price falls, the demand for the good will rise.

Answer 1

A) the values indicates that a 1 per cent increase in income will increase the demand for movies by 3.4 per cent.

Since the income elasticity of good is percentage change in it's quantity demanded due to percentage change in income level.

B) if the income elasticity coefficient is negative, it means: that the good is inferior so that if income falls, the demand for good will rise

Because negative relationship does exist between quantity demanded and income in case of inferior goods. When income increases, demand for inferior good falls and when income falls, demand for inferior good rise.