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Data collected in the imaginary economy of Illum reveals that a 15% increase in income leads to the following changes: A 40% increase in the quantity demanded of marpod A 10% decrease in the quantity demanded of farb A 12% increase in the quantity demanded of lafgar The income elasticity of demand for lafgar is _? (Be careful to keep track of the direction of change
Data collected in the imaginary economy of Illum reveals that a 15% increase in income leads to the following changes:
- A 40% increase in the quantity demanded of marpod
- A 10% decrease in the quantity demanded of farb
- A 12% increase in the quantity demanded of lafgar
The income elasticity of demand for lafgar is _? (Be careful to keep track of the direction of change. Like the cross-price elasticity of demand, the sign of the income elasticity of demand can be positive or negative, and important information is conferred by the sign.)
According to the income elasticity of demand, marpod is _?_ good and farb is ? good.
Which of the following three goods is most likely to be classified as a luxury good?
a. Farb
b. Marpod
c. Lafgar
Expert Solution
The income elasticity of lafgar is 12/15 = 0.8. Marpod is a normal good and farb is a inferior good. To be a luxury good is to be inelastic. The elasticity of lafgar is inelastic and marpod is elastic so lafgar is a luxury good.
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