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Calculate Income-elasticity for the household when the income of a household rises by 5% and the demand for bajra falls by 2%
  • a)
    + 2.5
  • b)
    – 2.5
  • c)
    -.4
  • d)
    +.4
Correct answer is option 'C'. Can you explain this answer?
Most Upvoted Answer
Calculate Income-elasticity for the household when the income of a hou...
-0.4c) -2.5d) 0.4

Answer: d) 0.4

Income-elasticity is calculated as the percentage change in quantity demanded divided by the percentage change in income.

Income-elasticity = (% change in quantity demanded) / (% change in income)

Given, the income of a household rises by 5% and the demand for bajra falls by 2%.

So, % change in quantity demanded = -2% and % change in income = 5%

Income-elasticity = (-2% / 5%) = -0.4

However, income-elasticity is typically expressed as a positive number, so the absolute value of -0.4 is taken, which is 0.4. Therefore, the income-elasticity for the household is 0.4.
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Community Answer
Calculate Income-elasticity for the household when the income of a hou...
Income Elasticity for inferior goods is negative, as bajra is an inferior good, so,
we see by formula,
change in quantity/change in income = -2%/5%
= -0.4
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Calculate Income-elasticity for the household when the income of a household rises by 5% and the demand for bajra falls by 2%a)+ 2.5b)– 2.5c)-.4d)+.4Correct answer is option 'C'. Can you explain this answer?
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