Question

Suppose that after hurricane​ Irene, the average income in Cape​ Charles, Virginia decreased by

16

percent. In response to this change in​ income, suppose the quantity of steak demanded in Cape Charles​ (holding the price of steak​ constant) decreased by

2

percent. What is the income elasticity of demand for steak in Cape​ Charles?

The income elasticity of demand for steak in Cape Charles is

nothing.

​(Enter your response rounded to two decimal​ places.)

In this​ instance, steak in Cape Charles is

Answer 1

Income elasticity of demand measures the degree of responsiveness of the quantity demanded of a commodity to a change in the income of consumers. It is calculated as-

Income elasticity of demand= % change in quantity demanded / % change in income

Given that income decreases by 16% and quantity demanded of steak decreases by 2% . So,

Income elasticity of demand= % change in quantity demanded / % change in income

Income elasticity of demand= 2% / 16%

Income elasticity of demand= 0.13

Hence, Income elasticity of demand for steak in Cape Charles is 0.13 ( ANSWER)

In this instance, steak in Cape Charles is a NORMAL GOOD (ANSWER)

Normal goods are those goods the quantity demanded of which increases as income of consumers increases and decreases as income of consumers decreases. Here, there exists a positive relationship between the demand for a normal good and income of consumers.

Here, as decreases in income leads to a decrease in demand for steak , steak is a NORMAL GOOD.