Question

A
10 percent increase in Sandra’s income causes Sandra’s consumption of milk to decrease from 10
cartons to 6
cartons. Sandra’s income elasticity of demand for milk is


greater than zero and therefore milk is a necessity


a

greater than zero and therefore milk is a normal good


b

less than zero and therefore milk is a normal good


c

less than zero and therefore milk is an inferior good


d

greater than one and therefore milk is a necessity

Answer 1

Income elasticity = (%ΔQ) / (%ΔI) = [ (6−10)/10 ] / 0.10 = (−0.40) / 0.10 = −4.0.

Elasticity is less than zero, so milk is an inferior good. Answer: d.