An​ individual's income rises from ​$88 comma 000

Question

per year to ​$92 comma 000

per​ year, and as a consequence the​ person's purchases of movie downloads rise from 2

per month to 4

per month.
This​ individual's income elasticity of demand is---.

Answer 1

The income elasticity of demand can be calculated using the formula:

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

To calculate the % change in quantity demanded:
Change in quantity demanded = New quantity demanded - Initial quantity demanded
% change in quantity demanded = (Change in quantity demanded / Initial quantity demanded) × 100%

Change in quantity demanded = 4 - 2 = 2
Initial quantity demanded = 2
% change in quantity demanded = (2 / 2) × 100% = 100%

To calculate the % change in income:
Change in income = New income - Initial income
% change in income = (Change in income / Initial income) × 100%

Change in income = $92,000 - $88,000 = $4,000
Initial income = $88,000
% change in income = ($4,000 / $88,000) × 100% ≈ 4.55%

Now, we can substitute these values into the income elasticity of demand formula:
Income elasticity of demand = (100% / 4.55%) ≈ 21.98

Therefore, this individual's income elasticity of demand is approximately 21.98.

Answer 2

This​ individual's income elasticity of demand is 15
. Therefore, movie downloads are---normal, inferior, substitute---.

Answer 3

If the income elasticity of demand for movie downloads is 15, it indicates a high positive value. This means that movie downloads are considered a normal good.

Normal goods are products or services for which demand increases as income rises. In this case, as the individual's income increased, their purchases of movie downloads also increased. Therefore, movie downloads are considered a normal good for this individual.