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Understanding Income Elasticity of Demand Quiz

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What does income elasticity of demand measure?

The change in quantity demanded in response to a change in income

Explanation

Measures responsiveness of quantity demanded to income changes.

If a good has an income elasticity of demand of 0.5, it is considered to be:

An inferior good

Explanation

Inferior goods have income elasticity less than 1.

Which of the following scenarios indicates a positive income elasticity of demand?

The demand for luxury cars increases as income increases

Explanation

Positive elasticity: luxury cars' demand rises with income.

If a good has an income elasticity of demand greater than 1, it is considered to be:

A luxury good

Explanation

Luxury goods have income elasticity greater than 1.

What is the formula to calculate income elasticity of demand?

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

Explanation

Formula: % change in quantity demanded / % change in income.

Which of the following goods is most likely to have a positive income elasticity of demand?

Luxury cars

Explanation

Goods with positive elasticity: luxury cars.

If a good has an income elasticity of demand of -0.3, what does it imply?

It is an inferior good

Explanation

Negative elasticity: -0.3 implies an inferior good.

What does it mean if a good has a negative income elasticity of demand?

The good is an inferior good

Explanation

Negative elasticity: inferior goods decrease with higher income.

If the income elasticity of demand for a product is 0, what type of good is it?

Unitary elastic good

Explanation

Unitary elastic: % change in quantity demanded equals % change in income.

#10

Which of the following goods is likely to have an income elasticity of demand close to zero?

Health insurance

Explanation

Goods with low elasticity: health insurance.

#11

What does it mean if the income elasticity of demand for a good is greater than 1?

The good is a luxury

Explanation

Luxury goods: income elasticity greater than 1.

#12

What does it mean if the income elasticity of demand for a good is negative?

The good is an inferior good

Explanation

Negative elasticity: the good is inferior.

Understanding Income Elasticity of Demand Quiz

What does income elasticity of demand measure?

If a good has an income elasticity of demand of 0.5, it is considered to be:

Which of the following scenarios indicates a positive income elasticity of demand?

If a good has an income elasticity of demand greater than 1, it is considered to be:

What is the formula to calculate income elasticity of demand?

Which of the following goods is most likely to have a positive income elasticity of demand?

If a good has an income elasticity of demand of -0.3, what does it imply?

What does it mean if a good has a negative income elasticity of demand?

If the income elasticity of demand for a product is 0, what type of good is it?

Which of the following goods is likely to have an income elasticity of demand close to zero?

What does it mean if the income elasticity of demand for a good is greater than 1?

What does it mean if the income elasticity of demand for a good is negative?

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