Respuesta :
Answer:1) how responsive quantity demanded is to changes in income--A 2) income elasticity of demand for butter is 0.11. That means butter is a luxury good---A
Explanation:
1) Income elasticity of demand refers to the responsiveness of the quantity demanded for a certain good to a change in income of consumers who purchase this good.The higher the income elasticity of a good, the greater the consumers' response in their purchasing lifestyle.
The formula for Income elasticity of demands given by
The percent change in quantity demanded divided by the percent change in income.
2) Income elasticity of demand, helps us to identify if a particular good represents a necessity or a luxury.
-when the income elasticity for a good is less than 1(ie from 0-1) we say that the good is a normal good. these goods are also called necessity goods and consumers will purchase them irrespective of the changes in their income eg water, electricity
- when the income elasticity of a good is greater than 1 , we say that the good is a luxury good. eg butter
- An inferior good is one with a negative income elasticity which means rising incomes will lead to a drop in demand.
Answer:
1) The correct answer is letter "A": how responsive quantity demanded is to changes in income.
2) The correct answer is letter "A": a luxury good.
Explanation:
1) Income elasticity of demand refers to the fluctuations of the quantity demanded in front of changes in income. It is calculated by dividing the percentage change of quantity demanded by the percentage change in income. If the result is greater than (1) or equal to (0), the demand is elastic. If the result is lower than (1) the demand is inelastic.
2) In case the demand elasticity of butter is 0.11, it implies it is elastic. It means in front of small changes in income, would change exponentially the quantity demanded for butter. This characteristic is typical in luxury items since when people's income increase the quantity demanded increase and when people's income decrease so does quantity demanded.
