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When Income Increases by 1%,the Quantity Demanded of a Good

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Essay

When income increases by 1%,the quantity demanded of a good decreases by 2%.What is the income elasticity of the good? Is the good normal or inferior? Why?


Definitions:

Tax

A compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Deadweight Loss

A decrease in economic efficiency due to the failure to achieve or the impossibility of achieving equilibrium for a good or service.

Price-Elastic

Describes a good's demand sensitivity to changes in price; high elasticity indicates demand is highly responsive to price changes.

Excise Tax

A tax paid on specific goods and services, such as tobacco and gasoline, usually levied at the point of manufacture or sale.

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