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Author Question: Calculate the income elasticity of demand for DVDs, where a 10 percent increase in income results in ... (Read 529 times)

tfester

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on: Jun 30, 2018
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.


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fatboyy09

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Reply #1 on: Jun 30, 2018
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

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Reply #2 on: Jun 30, 2018
Thank you :)


fatboyy09

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Reply #3 on: Jun 30, 2018
Happy to help you


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