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Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?
- a)Demand is price inelastic
- b)The good is inferior
- c)Income elasticity is -2
- d)The product has a positive income elasticity of demand
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quant...
The percentage change in demand is +20%; the percentage change in income is +10%. This means the product is normal because demand rises with more income and has an income elasticity of +2.
Most Upvoted Answer
Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quant...
Income elasticity will be 0.5 using the formula
% change in dd / %change in income .
then how did income elasticity become 2 ?
% change in dd / %change in income .
then how did income elasticity become 2 ?
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Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quant...
Explanation:
The correct answer is option D, which states that the product has a positive income elasticity of demand.
Income Elasticity of Demand:
Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
Calculation:
Given that the average income increases from INR 20,000 to INR 22,000, the percentage change in income can be calculated as follows:
Percentage Change in Income = ((New Income - Old Income) / Old Income) * 100
= ((22,000 - 20,000) / 20,000) * 100
= 10%
Similarly, the percentage change in quantity demanded can be calculated as follows:
Percentage Change in Quantity Demanded = ((New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded) * 100
= ((6,000 - 5,000) / 5,000) * 100
= 20%
Interpretation:
Since the income elasticity of demand is positive, it indicates that the quantity demanded of the good increases as income increases. In this case, as the average income increases, the quantity demanded per month also increases. This suggests that the good is a normal good, and people are willing to buy more of it as their income increases.
Therefore, option D is the correct answer.
The correct answer is option D, which states that the product has a positive income elasticity of demand.
Income Elasticity of Demand:
Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.
Calculation:
Given that the average income increases from INR 20,000 to INR 22,000, the percentage change in income can be calculated as follows:
Percentage Change in Income = ((New Income - Old Income) / Old Income) * 100
= ((22,000 - 20,000) / 20,000) * 100
= 10%
Similarly, the percentage change in quantity demanded can be calculated as follows:
Percentage Change in Quantity Demanded = ((New Quantity Demanded - Old Quantity Demanded) / Old Quantity Demanded) * 100
= ((6,000 - 5,000) / 5,000) * 100
= 20%
Interpretation:
Since the income elasticity of demand is positive, it indicates that the quantity demanded of the good increases as income increases. In this case, as the average income increases, the quantity demanded per month also increases. This suggests that the good is a normal good, and people are willing to buy more of it as their income increases.
Therefore, option D is the correct answer.
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Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?a)Demand is price inelasticb)The good is inferiorc)Income elasticity is -2d)The product has a positive income elasticity of demandCorrect answer is option 'D'. Can you explain this answer?
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Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?a)Demand is price inelasticb)The good is inferiorc)Income elasticity is -2d)The product has a positive income elasticity of demandCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?a)Demand is price inelasticb)The good is inferiorc)Income elasticity is -2d)The product has a positive income elasticity of demandCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?a)Demand is price inelasticb)The good is inferiorc)Income elasticity is -2d)The product has a positive income elasticity of demandCorrect answer is option 'D'. Can you explain this answer?.
Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?a)Demand is price inelasticb)The good is inferiorc)Income elasticity is -2d)The product has a positive income elasticity of demandCorrect answer is option 'D'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?a)Demand is price inelasticb)The good is inferiorc)Income elasticity is -2d)The product has a positive income elasticity of demandCorrect answer is option 'D'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Average income increases from INR 20,000 p.m. to INR 22,000 p.m. Quantity demanded per month increases from 5000 to 6000 units. Which of the following is correct?a)Demand is price inelasticb)The good is inferiorc)Income elasticity is -2d)The product has a positive income elasticity of demandCorrect answer is option 'D'. Can you explain this answer?.
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