A Level Economics (9708)•9708/12/O/N/23
Explanation
Income Elasticity of Demand Calculation
Steps:
- Compute % change in quantity demanded: (105 - 100) / 100 × 100% = 5%.
- Note % change in income: -10%.
- Apply formula: income elasticity = (%ΔQ) / (%ΔI) = 5% / (-10%) = -0.5.
Why B is correct:
- Formula E_I = (% change in quantity) / (% change in income) yields -0.5, indicating an inferior good where demand rises as income falls.
Why the others are wrong:
- A: Wrong magnitude; implies 20% quantity increase.
- C: Ignores negative income change, yielding positive value.
- D: Reverses sign and doubles magnitude.
Final answer: B
Topic: Price elasticity, income elasticity and cross elasticity of demand
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