Question

If pizza is a normal good, then which of the following could be the value of income elasticity of demand? • 0.2 • 0.8 • 1.4 • All of the above

Answer 1

Answer- All of the above

Income elasticity of demand measures the degree of responsiveness of the quantity demanded of a commodity to a change in the income of the consumers. When increase in the income leads to an increase in the quantity demanded of a commodity and a decrease in the income leads to a decrease in quantity demanded of a commodity, then Income elasticity of demand is said to be positive. Goods with positive income elasticity are called " normal goods". Normal goods are those goods the quantity demanded of which increases as income of consumers increases and decreases as income of consumers decreases. The income elasticity of normal goods can be Inelastic i.e., less than 1 or elastic i.e., greater than 1 or Unitary elastic i.e., equal to 1. Hence, 0.2, 0.8 and 1.4 , all are correct options because all indicate a positive income elasticity i.e., an increase in the income will increase the quantity demanded of a commodity and a decrease in income will decrease the quantity demanded of a commodity.