Answer:
The correct answer is option E.
Explanation:
Income elasticity of demand measures the change in quantity demanded of a product because of a change in the income of the consumer. It is calculated as a ratio of change in quantity demanded and change in income.
At the income level of $300, the consumers buy 5 bars of chocolate. When the income increases to $330, the consumer buys 6 bars of chocolate.
The income elasticity of demand is
= [tex]\frac{\Delta Q}{\Delta Y}[/tex]
= [tex]\frac{\frac{6-5}{5} }{\frac{330-300}{300} }[/tex]
= [tex]\frac{\frac{1}{5} }{\frac{30}{300} }[/tex]
= [tex]\frac{0.2}{0.1}[/tex]
= 2
Since the income elasticity of demand is positive, this implies that chocolate is a normal good.
Based on this information, the chocolate is a normal good : E. 2; normal
Income elasticity of demand is calculated as ratio of change in quantity demanded and change in income
= Change in quantity demanded / Change in income
Change in quantity demanded
= 6 - 5 / 5
= 1 / 5
= 0.5
Change in income
= 330 - 300 / 300
= 30 / 300
= 0.1
Therefore, Income elasticity of demand
= 0.5 / 0.1
= 2
Hence, the income elasticity of demand is positive, which means chocolate is a normal good.
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