Calculate the income elasticity of demand for DVDs, where a 10 ...

[tfester]

Calculate the income elasticity of demand for DVDs, where a 10 percent increase in income results in a 20 percent increase in the demand for DVDs. Decide from your answer, whether DVDs are normal or inferior goods.

Question 2

Higher rates of anticipated inflation would tend to:
 a. increase velocity and decrease nominal GDP.
  b. increase velocity and increase nominal GDP.
  c. decrease velocity and decrease nominal GDP.
  d. decrease velocity and increase nominal GDP.

[fatboyy09]

Answer to Question 1

Income elasticity of demand for DVDs is +2 (+20 percent/ +10 percent = +2)

In general, if the income elasticity is positive, then the good in question is a normal good because income and demand move in the same direction. DVDs are normal goods because an increase in income results in an increase in demand.

Answer to Question 2

b

[tfester]

Thank you

[fatboyy09]

Happy to help you