sogem:(-2.67,-0.37,0.38,2.67) kang:(-1.14,-0.88,0.88,1.14) welk:(-1.81,-0.55,0.5

Question

sogem:(-2.67,-0.37,0.38,2.67)

kang:(-1.14,-0.88,0.88,1.14)

welk:(-1.81,-0.55,0.55,1.81)

Using the income elasticity of demand to characterize goods Data collected from the imaginary economy of Tralfamadore reveals that a 16% increase in income leads to the following changes: A 6% increase in the quantity of sogem demanded A 14% decrease in the quantity of kang demanded A 29% increase in the quantity of welk demanded Compute the income elasticity of demand for each of the goods described, and select the appropriate value in the following table. Then indicate whether the income elasticity for each good indicates that it is a normal good or an inferior good. The sign of the income elasticity of demand can be positive or negative, and important information is conferred by the sign. Good Income Elasticity of Demand Normal or Inferior Good Sogem Kang Welk Which of the following three goods is most likely to be classified as a luxury good? Kang Sogem Welk

Explanation / Answer

Income elasticity of sogem = 6/16 = 0.375

Income elasticity of kang = -14/16 = -0.875

Income elasticity of welk = 29/16 = 1.8125

Sogen : Normal

Kang : Inferior

Welk : Normal

Welk is most likely to be the luxury good.

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