Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The quantity demanded will increase proportionately with income.
B
The good is a luxury good.
C
The good will have no change in quantity demanded.
D
The demand for the good will decrease.
Understanding the Answer
Let's break down why this is correct
Answer
If the income elasticity of demand for a good is equal to 1, it means that when people's income increases by a certain percentage, the quantity demanded for that good also increases by the same percentage. This shows that the good is a normal good, which people buy more of as they have more money. When the price elasticity of demand is unit elastic, it indicates that changes in price will lead to proportional changes in the quantity demanded. For example, if the price of the good goes up by 10%, the quantity demanded will decrease by 10%. Together, these elasticities suggest that as income rises, the demand for the good increases at the same rate, making it a good that people will continue to buy even if its price changes.
Detailed Explanation
When income goes up, the amount people want to buy also goes up by the same percentage. Other options are incorrect because Some might think a good is a luxury just because it has a high demand; It's a common mistake to think that demand stays the same when income rises.
Key Concepts
income elasticity of demand
unit elastic demand
formula for price elasticity
Topic
Elasticity Formulas and Relationships
Difficulty
hard level question
Cognitive Level
understand
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