An individual's income rises from $80,000 per year to $84,000 per year, and as a consequence, the person's purchases of movie downloads rise from 48 per year to 72 per year. What is this individual's income
Concept Introduction:
Income elasticity of demand: It refers to the degree of responsiveness to change in the quantity demanded due to change in income of the consumer. It can be calculated as:
Where,
I and Q = Initial Income and Quantity demanded.
If the income elasticity comes out to be positive, then the good is said to be normal good [when the income increases (or decreases), the demand for normal good also rises (or falls)].
If the income elasticity comes out to be negative, then the good is said to be an inferior good [when the income increases (or decreases), the demand for inferior good falls (or rises)]
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