Explain in your own words what information the income elasticity of demand provides. If a good is an inferior good, what will the sign of the income elasticity of demand be? Explain. If a good is a normal good, what will the sign of the income elasticity of demand be? Explain. Suppose consumers experience an increase in income. If the income elasticity of demand is equal to 1.6, what will happen to the demand for new cars? As a result of the increase in income, holding other things constant, what will happen to new car prices. Suppose consumers experience an increase in income. If the income elasticity of demand is equal to -1.6, what will happen to the demand for used cars? As a result, holding other things constant, what will happen to the price of used cars?

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ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 4.9P: (Other Elasticity Measures) Complete each of the following sentences: a. The income elasticity of...

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Explain in your own words what information the income elasticity of demand provides.

If a good is an inferior good, what will the sign of the income elasticity of demand be? Explain.
If a good is a normal good, what will the sign of the income elasticity of demand be? Explain.
Suppose consumers experience an increase in income. If the income elasticity of demand is equal to 1.6, what will happen to the demand for new cars? As a result of the increase in income, holding other things constant, what will happen to new car prices.
Suppose consumers experience an increase in income. If the income elasticity of demand is equal to -1.6, what will happen to the demand for used cars? As a result, holding other things constant, what will happen to the price of used cars?

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