If Income Increases from $50,000 to $60,000 While the Demand

question 40

Essay

If income increases from $50,000 to $60,000 while the demand for a good increases from 100 units to 125 units, what is the income elasticity of demand? Is the good a normal good or an inferior good?

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Definitions:

Common Fixed Expenses

Overhead costs that do not vary with production volume and are shared across different departments or products.

Break-Even

The point at which total revenues equal total costs, resulting in no profit or loss for the business.

Sales Dollars

A measurement of revenue generated from the sale of goods or services, expressed in monetary units.

Net Operating Income

The total profit of a company after operating expenses are deducted from operating revenues, but before interest and taxes are deducted.